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Bohemian Manufacturing Company reported sales of $890,000 at the end of last year, but this...

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Finance

Bohemian Manufacturing Company reported sales of $890,000 at the end of last year, but this year, sales are expected to grow by 6%. Bohemian expects to maintain its current profit margin of 24% and dividend payout ratio of 30%. The following information was taken from Bohemians balance sheet:

Total assets: $400,000
Accounts payable: $65,000
Notes payable: $45,000
Accrued liabilities: $65,000

Based on the AFN equation, the firms AFN for the current year is .

A positively signed AFN value represents:

a point at which the funds generated within the firm equal the demands for funds to finance the firms future expected sales requirements.

a surplus of internally generated funds that can be invested in physical or financial assets or paid out as additional dividends.

a shortage of internally generated funds that must be raised outside the company to finance the companys forecasted future growth.

Because of its excess funds, Bohemian Manufacturing Company is thinking about raising its dividend payout ratio to satisfy shareholders. Bohemian could pay out of its earnings to shareholders without needing to raise any external capital. (Hint: What can Bohemian increase its dividend payout ratio to before the AFN becomes positive?)

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