More on the AFN Additional Funds Needed equation
Cold Duck Manufacturing Inc. reported sales of $ at the end of last year, but this year, sales are expected to grow by Cold Duck expects
to maintain its current profit margin of and dividend payout ratio of The following information was taken from Cold Duck's balance sheet:
Based on the AFN equation, the firm's AFN for the current year is
A positively signed AFN value represents:
a surplus of internally generated funds that can be invested in physical or financial assets or paid out as additional dividends.
a point at which the funds generated within the firm equal the demands for funds to finance the firm's future expected sales
requirements.
a shortage of internally generated funds that must be raised outside the company to finance the company's forecasted future growth.
Because of its excess funds, Cold Duck Manufacturing Inc. is thinking about raising its dividend payout ratio to satisfy shareholders. Cold Duck could
pay out of its earnings to shareholders without needing to raise any external capital. Hint: What can Cold Duck increase its dividend
payout ratio to before the AFN becomes positive?
