You Have Been Asked to Forecast the Additional Funds Needed

question 23

Multiple Choice

You have been asked to forecast the additional funds needed (AFN) for Houston, Hargrove, & Worthington (HHW) , which is planning its operation for the coming year.The firm is operating at full capacity.Data for use in the forecast are shown below.However, the CEO is concerned about the impact of a change in the payout ratio from the 10% that was used in the past to 50%, which the firm's investment bankers have recommended.Based on the AFN equation, by how much would the AFN for the coming year change if HHW increased the payout from 10% to the new and higher level? All dollars are in millions. $$\begin{array} { l l l } \text { Last year's sales } = \mathrm { S } _ { 0 } & \$ 300.0 \text { Last year's accounts payable } & \$ 50.0 \\\text { Sal es growth rate } = \mathrm { g } & 40 \% \text { Last year's notes payable } & \$ 15.0 \\\text { Last year's total assets } = \mathrm { A } _ { 0 } ^ { * } & \$ 500.0 \text { Last year's accruals } & \$ 20.0 \\\text { Last year's profit margin = PM } & 20.0 \% \text { Initial payout ratio } & 10.0 \%\end{array}$$

• A) $31.9
• B) $33.6
• C) $35.3
• D) $37.0
• E) $38.9

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Definitions:

Indefinite Life

Indefinite life refers to the characteristic of an intangible asset that does not have a foreseeable limit to the period over which it is expected to generate economic benefits for its owner.

Consolidated Balance Sheet

A financial statement showing the aggregated financial position of a parent company and its subsidiaries.

Buildings

Buildings refer to structures that are permanently constructed or erected on land, serving as places for residence, business, or other purposes.

Trial Balance

A bookkeeping report that lists the balances of all ledgers in two columns, debits and credits, to verify the arithmetic accuracy of the entries.