Problem 1: Splash Bottling’s December 31st balance sheet is given below:
Cash $ 10 Accounts payable $15
Accounts receivable 25 Notes payable 20
Inventories 40 Accrued wages and taxes 15
Net fixed assets 75 Long-term debt 30
Common equity 70
Total liabilities
Total assets $150 and equity $150
Sales during the past year were $100, and they are expected to rise by 50 percent to $150 during next year. Also, during last year fixed assets were being utilized to only 85 percent of capacity, so Splash could have supported $100 of sales with fixed assets that were only 85 percent of last year’s actual fixed assets. Assume that Splash’s profit margin will remain constant at 5 percent and that the company will continue to pay out 60 percent of its earnings as dividends. To the nearest whole dollar, what amount of nonspontaneous, additional funds (AFN) will be needed during the next year?
Problem 2: Kenney Corporation recently reported the following income statement for 2002 (numbers are in millions of dollars):
Sales $7,000
Operating costs 3,000
EBIT $4,000
Interest 200
Earnings before taxes (EBT) $3,800
Taxes (40%) 1,520
Net income available to
common shareholders $2,280
The company forecasts that its sales will increase by 10 percent in 2003 and its operating costs will increase in proportion to sales. The company’s interest expense is expected to remain at $200 million, and the tax rate will remain at 40 percent. The company plans to pay out 50 percent of its net income as dividends, the other 50 percent will be additions to retained earnings. What is the forecasted addition to retained earnings for 2003?