FIN 534 - Homework Chapter 12 Answers

1. F. Marston, Inc. has developed a forecasting model to estimate its AFN for the upcoming year. All else being equal, which of the following factors is most likely to lead to an increase of the additional funds needed (AFN)?

a. A switch to a just-in-time inventory system and outsourcing production.

b. The company reduces its dividend payout ratio.

c. The company switches its materials purchases to a supplier that sells on terms of 1/5, net 90, from a supplier whose terms are 3/15, net 35.

d. The company discovers that it has excess capacity in its fixed assets.

e. A sharp increase in its forecasted sales.

1. The term "additional funds needed (AFN)" is generally defined as follows:

a. Funds that a firm must raise externally from...