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.

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.

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter12: Corporate Valuation And Financial Planning

Section: Chapter Questions

Problem 6Q: Suppose a firm makes the following policy changes listed. If a change means that external,...

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Suppose a firm makes the following policy changes. If the change means that external nonspontaneousfinancial requirements (AFN) will increase, indicate this with a (+); indicate adecrease with a (-); and indicate an indeterminate or negligible effect with a (0). Think interms of the immediate short-run effect on funds requirements.a. The dividend payout ratio is increased. _____________b. Rather than produce computers in advance, a computer companydecides to produce them only after an order has been received. _____________c. The firm decides to pay all suppliers on delivery, rather than aftera 30-day delay, to take advantage of discounts for rapid payment. _____________d. The firm begins to sell on credit. (Previously, all sales had been on acash basis.) _____________e. The firm’s profit margin is eroded by increased competition; sales aresteady. _____________f. Advertising expenditures are stepped up. _____________g. A decision is made to substitute long-term mortgage bonds for…
True or False The CFROI is a measure of the dollar surplus value created by an investment or a portfolio of investments. The cash flow return on investment (CFROI) for a firm is the internal rate of return on existing investments, based on real cash flows. If the gross investment in existing assets is reduced, the CFROI may be increased.
A firm's cost of capital indicates [Select] A firm must earn [Select] provided. the risk of the firm's assets. to compensate investors for the financing they hav The required return for a firm is the same as [Select]
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If Corporation A operates at full capacity and Corporate B operates at less than full capacity which will have a higher additional funds needed if all else is the same and why? What is the capital intensity ratio? What makes a capital intensity ratio higher, why higher capital lead to higher AFN?
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The optimal capital structure: Multiple Choice will be the same for all companies within the same industry. will remain constant over time unless the company changes its primary operations. will vary over time as taxes and market conditions change. places more emphasis on operations than on financing. is unaffected by changes in the financial markets.
Considering each action independently and holding other things constant, which of the following actions would reduce a firm’s need for additional capital? a. An increase in the dividend payout ratio. b. A decrease in the days sales outstanding. c. An increase in expected sales growth. d. A decrease in the profit margin. When the company is working at full capacity, the assets in the AFN equation is the fixed assets only True False
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