Additional fund requirement

The percent of sales method is based on which of the following assumptions?

• All balance sheet accounts are tied directly to sales.

• Except few most balance sheet accounts are tied directly to sales.

• The current level of total assets is optimal for the current sales

  level.

• Except few most balance sheet accounts are tied directly to sales & The current level of total assets is optimal for the current sales

  level.

A company is forecasting an increase in sales and is using the AFN model to forecast the additional capital that they need to raise. Which of the following factors are likely to increase the additional funds needed (AFN)?

• The company has a lot of excess capacity.

• The company has a high dividend payout ratio.

• The company has a low profit margin margin.

• The company has a high profit margin.

City Computers has developed a forecasting model to determine the additional funds it needs in the upcoming year. All else being equal, which of the following factors is likely to increase its additional funds needed (AFN)?

• A sharp increase in its forecasted sales and the company’s fixed

  assets are at full capacity.

• A reduction in its dividend payout ratio.

• The company reduces its reliance on trade credit that sharply

  reduces its accounts payable.

• A sharp increase in its forecasted sales and the company’s fixed

  assets are at full capacity & The company reduces its reliance on trade credit that sharply reduces its accounts payable.

Which of the following is likely to increase the additional funds needed (AFN) in a given year?

• The company reduces its dividend payout ratio.

• The company’s profit margin increases.

• The company decides to reduce its reliance on accounts payable as a form of financing.

• The company is operating well below full capacity.

All else equal, which of the following is likely to increase a company’s additional funds needed (AFN)?

• An increase in its dividend payout ratio.

• The company has a lot of excess capacity.

• Accounts payable increase faster than sales.

• None of the statements is correct.

Additional funds needed are best defined as:

• Funds that are obtained automatically from routine business transactions

• Funds that a firm must raise externally through borrowing or by

  selling new common or preferred stock

• The amount of assets required per dollar of sales.

• A forecasting approach in which the forecasted percentage of sales for each item is held constant.

Which of the following is likely to decrease the additional funds needed (AFN) in a given year?

• The company increases its retention ratio.

• The company’s profit margin increases.

• The company’s sales growth is reduced

• All of the statements above is correct.