Jefferson City Computers 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?
A) a sharp increase in its forecasted sales
B) a sharp reduction in its forecasted sales
C) the company reduces its dividend payout ratio
D) the company discovers that it has excess capacity in its fixed assets

Question

Quizplus · Accepted Answer

A sharp increase in forecasted sales would lead to an increase in the company's assets, which in turn would require additional funds to finance the increased level of activity. Conversely, a decrease in forecasted sales would decrease the need for additional funds. The other options either have no direct impact on the AFN or would lead to a decrease in the AFN.

Jefferson City Computers Has Developed a Forecasting Model to Estimate