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. -The firm previously thought its fixed assets were being operated at full capacity, but now it learns that it actually has excess capacity. -The firm’s forecasted sales are unexpectedly increased. -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?
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. -The firm previously thought its fixed assets were being operated at full capacity, but now it learns that it actually has excess capacity. -The firm’s forecasted sales are unexpectedly increased. -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?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Question
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.
-The firm previously thought its fixed assets were being operated at full capacity, but now it learns that it actually has excess capacity.
-The firm’s forecasted sales are unexpectedly increased.
-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?
-Yes, dividends still affect a firm’s AFN even though they are paid out of after-tax earnings.
-No, dividends do not affect a firm’s AFN, because they are paid out of after-tax earnings.
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