ProbsetCh14Qold4 - CORPORATE FINANCE FNCE 3010 Chapter 14...

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CORPORATE FINANCE FNCE 3010 1. Jefferson 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. A sharp increase in its forecasted sales and the company’s fixed assets are at full capacity. b. A reduction in its dividend payout ratio. c. The company reduces its reliance on trade credit that sharply reduces its accounts payable. d. Statements a and b are correct. e. Statements a and c are correct. 2. Which of the following statements is most correct? a. Inherent in the AFN formula is the assumption that each asset item must increase in direct proportion to sales increases and that spontaneous liability accounts also grow at the same rate as sales. b. If a firm has positive growth in its assets, but also has no increase in retained earnings, AFN for the firm must be positive. c. Using the AFN formula, if a firm increases its dividend payout ratio in anticipation of higher earnings, but sales actually decrease, the firm will automatically experience an increase in additional finds needed. d. Higher sales usually require higher asset levels. Some of the increase in assets can be supported by spontaneous increases in accounts payable and accruals, and by increases in certain current asset accounts and retained earnings. e. Dividend policy does not affect requirements for external capital under the AFN formula method. 3. Considering each action independently and holding other things constant, which of the following actions would reduce a firm's need for additional capital? a. An increase in the dividend payout ratio. b. A decrease in the profit margin. c. A decrease in the days sales outstanding. d. An increase in expected sales growth. e. A decrease in the accrual accounts (accrued wages and taxes). 4. Which of the following regarding AFN is most accurate? a.
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This note was uploaded on 11/08/2010 for the course FNCE 3010 taught by Professor Grossman during the Spring '10 term at Cornell University (Engineering School).

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ProbsetCh14Qold4 - CORPORATE FINANCE FNCE 3010 Chapter 14...

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