The term "additional funds needed (AFN)" is generally defined as follows: a A forecasting approach in which the forecasted percentage of sales for each balance sheet account is held constant. b. The amount of assets required per dollar of sales. c. The amount of internally generated cash in a given year minus the amount of cash needed to acquire the new assets needed to support growth. d. Funds that a firm must raise externally from non-spontaneous sources, ie., by borrowing or by selling new stock to support operations. e. Funds that are obtained automatically from routine business transactions.

The term "additional funds needed (AFN)" is generally defined as follows: a A forecasting approach in which the forecasted percentage of sales for each balance sheet account is held constant. b. The amount of assets required per dollar of sales. c. The amount of internally generated cash in a given year minus the amount of cash needed to acquire the new assets needed to support growth. d. Funds that a firm must raise externally from non-spontaneous sources, ie., by borrowing or by selling new stock to support operations. e. Funds that are obtained automatically from routine business transactions.

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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explain how a firm that expect funds during the coming year might make sure the needed funds will be avaiilable
The FASB concepts statement relating to cash flow information introduces the concept of expected cash flows when using present values for accounting measurements. Assume that Smith Company determined that it has a 40% probability of receiving $10,000 one year from now and a 60% probability of receiving $10,000 two years from now. (Click here to access the PV and FV tables to use with this problem.) Required: Using the FASB concepts, calculate the present value of the expected cash flows assuming a 12% interest rate compounded annually. Round your answer to two decimal places. $
Incremental cash flows: a. refer to only cash flows which occur at the end of a project b. are cash flows which change if you proceed with the project c. refer to only cash flows which occur at the start of a project d. are never included in capital budgeting analysis e. refer to the existing cash flows of the business
A firm has two possible investments with the following cash inflows. Each investment costs $435, and the cost of capital is seven percent. Use Appendix B and Appendix D to answer the questions. Assume that the investments are not mutually exclusive and there are no budget restrictions. Cash Inflows Year A B 1 $ 270 $ 170 2 140 170 3 100 170 Based on each investment’s net present value, which investment(s) should the firm make? Use a minus sign to enter negative values, if any. Round your answers to the nearest dollar. Investment A: $ Investment B: $ The firm should make . Based on each investment’s internal rate of return, which investment(s) should the firm make? Round your answers to the nearest whole number. Investment A: % Investment B: % The firm should make . Is this the same answer you obtained in part b? It the same answer as obtained in part b. If the cost of capital were to increase to 9 percent, which investment(s) should the firm…
Sd
All of the following are data rules associated with capital budgeting EXCEPT: a. Include changes across the full life cycle of the product or service. b. Include changes in every functional area of the business. c. Include financing flows in the cash flows of all proposed projects. d. Include forecasted inflation in the cash flow estimates.
Statement 1: Three of the four capital budgeting screening methods (Net Present Value, Internal Rate of Return and Payback Method) rely on the relevant expected cash inflows and outflows, whereas one (the Accrual Accounting Rate of Return Method) utilizes relevant accounting incomes and expenses. Statement 2: All expected cash flows in a capital budgeting analysis are treated as though they are received at the end of the year to which they are assigned, even though in actuality, they will be received throughout the year. Select the correct response: Both statements are correct. Only statement 1 is correct. Only statement 2 is correct. Both statements are incorrect.
Which one is most correct about AFN (additional fund needed) A. AFN > 0 happens when a firm exhausts internal funds to support its operations. B. Everything else remains unchanged, if a firm’s profit margin is expected to go up, then its AFN is more likely to increase as well. C. If everything else remains unchanged, when a firm increases its plowback ratio, its AFN will increase too. D. Companies with relatively high assets-to-sales ratios require a relatively large amount of new assets for any given increase in sales; hence, they must have a greater need for external financing.
Using Problem 1, if Hogwarts Corp.’s policy is to employ Aggressive financing policy, which of the following statement would best describe the policy employed? a. all fixed asset and half of the permanent current assets was financed with long-term liabilities b. all the fixed assets, permanent current assets and half of the temporary current assets was financed with long-term liabilities c. all the fixed assets, and permanent current assets was financed with long-term liabilities d. none of the above 2) Using Problem 1, how much is the temporary current assets needed during April?

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