Which of the following statements is correct? Group of answer choices - 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. - 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. - Dividend policy does not affect the requirement for external funds based on the AFN equation. - AFN is not always positive. - 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.
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
NEED ASAP. THANK YOU!!
1. Which of the following statements is correct?
2.
When we use the AFN equation to
Chachagogo, Inc. is planning its operations for next year, and the CEO wants you to forecast the firm's additional funds needed (AFN). Data for use in your forecast are shown below. Based on the AFN equation, what is the AFN for the coming year?
Last year’s sales P200,000 Last year's accounts payable P50,000
Sales growth rate 40% Last year's notes payable P25,000
Last year’s current assets P65,000 Last year's accruals P20,000
Last year’s noncurrent assets P70,000 Target plowback ratio 75.0%
Last year’s profit margin 20.0%
Jonson, Inc. is planning its operations for the coming year, and the CEO wants you to forecast the firm's additional funds needed (AFN). Data for use in the forecast are shown below. However, the CEO is concerned about the impact of a change in the retention ratio from 90% that was used in the past to 50%, which the firm's investment bankers have recommended. Seventy-five percent of the total assets are considered variable.
Last year’s sales P300.0 Last year’s accounts payable P40.0
Sales growth rate 15% Last year’s notes payable P10.0
Last year’s total assets P500.0 Last year’s accruals P20.0
Last year’s profit margin 15.0% Initial retention ratio 90.0%
What would the company’s capital intensity ratio be if the company changed the retention ratio to the new level?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
