If a firms assets are growing at a positive rate but its retained earnings are

If a firms assets are growing at a positive rate but

This preview shows page 1 - 2 out of 3 pages.

b. If a firm’s assets are growing at a positive rate, but its retained earnings are not increasing, then it would be impossible for the firm’s AFN to be negative. c. If a firm increases its dividend payout ratio in anticipation of higher earnings, but sales and earnings actually decrease, then the firm’s actual AFN must, mathematically, exceed the previously calculated AFN. d. Higher sales usually require higher asset levels, and this leads to what we call AFN. However, the AFN will be zero if the firm chooses to retain all of its profits, i.e., to have a zero dividend payout ratio. e. Dividend policy does not affect the requirement for external funds based on the AFN equation. 3. Which of the following statements is CORRECT?
Background image
Image of page 2

You've reached the end of your free preview.

Want to read all 3 pages?

  • Spring '08
  • NALLA
  • Balance Sheet, Generally Accepted Accounting Principles, AFN, payout ratio, AFN Equation

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture