EBK FINANCIAL MANAGEMENT: THEORY & PRAC
15th Edition
ISBN: 9781305886902
Author: EHRHARDT
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 12, Problem 6Q
Suppose a firm makes the following policy changes listed. If a change means that external, nonspontaneous financial requirements (AFN) will increase, indicate this by a (+); indicate a decrease by a (−); and indicate no effect or an indeterminate effect by a (0). Think in terms of the immediate effect on funds requirements.
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Students have asked these similar questions
If the key ratios are expected to remain constant, the AFN equation can be used toforecast the need for external funds. Write out the equation and explain its logic.
The funds requirement can be forecasted by theforecasted financial statement approach, but youcould also use the AFN formula. What is thisformula, and how does it work? What are itsadvantages and disadvantages relative to thefinancial statement method?
When we use the AFN equation to forecast the additional funds needed (AFN), we are implicitly assuming that all financial ratios are constant.
A. True
B. False
Chapter 12 Solutions
EBK FINANCIAL MANAGEMENT: THEORY & PRAC
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- Which of the following methods of capital budgeting tries to equate the present value of cash inflows to present value of cash outflows? a. Net present value b. Payback period c. Internal rate of return d. Accounting Rate of returnarrow_forwardExplain the concept of immunization within a portfolio management context. How can immunization be achieved for a fixed income strategy? What type of fund would typically employ immunization techniques? Further, can you employ immunization for asset only funds, and if so, how is this different to asset and liability types of funds? Carefully justify your answers.arrow_forwardGenerally, which of the following measurements is considered the best single criterion in capital budgeting decisions? a. WACC b. Internal rate of return c. Payback d. Net present valuearrow_forward
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- Define (a) return on investment, (b) risk, (c) financial flexibility, (d) liquidity, and (e) operating capability.arrow_forwardExplain what is meant by the internal rate of return of an investment and discuss its relationship to the NPV of an investment. Explain the problems posed for the use of the IRR when it is necessary (i) to choose between two investments and when (ii) investments are characterised by negative net cash flows at the end of their lives. Discuss and evaluate the use of the payback period as an investment criterion.arrow_forwardAn investment is a current commitment of money for a period of time, in order to derive future payments that will compensate for, the time the funds are committed, expected rate of inflation and uncertainty of future flow of funds Select one: True Falsearrow_forward
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