Several factors affect firms need for external funds
Course:- Financial Management
Reference No.:- EM13891896

Assignment Help
Assignment Help >> Financial Management

Several factors affect a firm’s need for external funds. Evaluate the effect of each following factor and place a check next to each factor that is likely to increase a firm’s need for external capital—that is, its AFN (additional funds needed). Check all that apply.

a) The firm decreases its retention ratio.

b) The firm previously thought its fixed assets were being operated at full capacity, but now it learns that it actually has excess capacity.

c) The firm switches its supplier for the majority of its raw materials. The new supplier offers less favorable credit terms and thus reduces the trade credit available to the firm, resulting in a reduction in accounts payable.

Dividends to common shareholders are paid out of after-tax earnings. Do these payouts affect a firm’s AFN?

a) Yes, dividends still affect a firm’s AFN even though they are paid out of after-tax earnings.

b) No, dividends do not affect a firm’s AFN, because they are paid out of after-tax earnings.

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Financial Management) Materials
The spot price of gold is $1200 per ounce. Assuming the one-year risk-free interest rate is 10% and the cost of storing gold is zero, what is your best estimate of the one-yea
Quick Computing currently sells 16 million computer chips each year at a price of $30 per chip. It is about to introduce a new chip, and it forecasts annual sales of 18 millio
Scanlin, Inc., is considering a project that will result in initial aftertax cash savings of $1.71 million at the end of the first year, and these savings will grow at a rate
Ted Tech Inc. is offering a 10% stock dividend. The firm currently has 200,000 shares outstanding and after-tax profits of $800,000. The current price of the stock is $48. a.
Suppose you know that a company’s stock currently sells for $56 per share and the required return on the stock is 10 percent. You also know that the total return on the stock
A 10 year bond of 1000 face amount with semiannual coupons, redeemable at par, is bought at a discount to yield 12 % convertible semiannually. If the book value six months bef
You are evaluating a project for The Tiff-any golf club, guaranteed to correct that nasty slice. You estimate the sales price of The Tiff-any to be $430 per unit and sales vol
The Cosmo K Manufacturing Group currently has sales of $1,400,000 per year. It is considering the addition of a new office machine, which will not result in any new sales but