Futuristic Development (FD) generated $3 million in sales last year with assets equal to $6 million. The firm operated at full capacity last year. According to FD's balance sheet, the only current liabilities are accounts payable, which equals $480,000. The only other liability is long-term debt, which equals $1,035,000. The common equity section is comprised of 500,000 shares of common stock with a book value equal to $3 million and $1,485,000 of retained earnings. Next year, FD expects its sales will increase by 20 percent. The company's net profit margin is expected to remain at its current level, which is 16 percent of sales. FD plans to pay dividends equal to $0.60 per share. It also plans to issue 70,000 shares of new common stock, which will raise $460,000. Estimate the additional funds needed (AFN) to achieve the forecasted sales next year. Round your answer to the nearest dollar.

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Chapter1: Investments: Background And Issues
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Futuristic Development (FD) generated $3 million in sales last year with assets equal to $6 million. The firm operated at full capacity last year. According to FD's balance sheet, the only current liabilities are accounts payable, which equals $480,000. The only other liability is long-term debt, which equals $1,035,000. The common equity section is comprised of 500,000 shares of common stock with a book value equal to $3 million and $1,485,000 of retained earnings. Next year, FD expects its sales will increase by 20 percent. The company's net profit margin is expected to remain at its current level, which is 16 percent of sales. FD plans to pay dividends equal to $0.60 per share. It also plans to issue 70,000 shares of new common stock, which will raise $460,000. Estimate the additional funds needed (AFN) to achieve the forecasted sales next year. Round your answer to the nearest dollar.

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The following table shows the initial forecast and the AFN:
Sales
Net profit margin
Net income- Sales x 0.11
Shares of common stock
Dividend - $0.60 x (# shares)
Addition to retained earnings
Total assets
Accounts payable/Accruals
Long-term debt
Common stock
Retained earnings
Total liabilities & equity
AFN
Current
$3,000,000
11.0%
$ 330,000
400,000
$ 240,000
$ 90,000
$5,000,000
$ 380,000
750,000
3,000,000
870,000
$5,000,000
Growth
x 1.16
+ 50,000
x
1.16
x 1.16
+ 395,000
+ 112,800
Initial Forecast
$3,480,000
11.0%
$ 382,800
450,000
$ 270,000
$ 112,800
$5,800,000
$ 440,800
750,000
3,395,000
982,800
$5,568,600
$ 231,400
Transcribed Image Text:Incorrect Post Submission Feedback Solution The following table shows the initial forecast and the AFN: Sales Net profit margin Net income- Sales x 0.11 Shares of common stock Dividend - $0.60 x (# shares) Addition to retained earnings Total assets Accounts payable/Accruals Long-term debt Common stock Retained earnings Total liabilities & equity AFN Current $3,000,000 11.0% $ 330,000 400,000 $ 240,000 $ 90,000 $5,000,000 $ 380,000 750,000 3,000,000 870,000 $5,000,000 Growth x 1.16 + 50,000 x 1.16 x 1.16 + 395,000 + 112,800 Initial Forecast $3,480,000 11.0% $ 382,800 450,000 $ 270,000 $ 112,800 $5,800,000 $ 440,800 750,000 3,395,000 982,800 $5,568,600 $ 231,400
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