company expects sales to increase during the coming year, and it is using the AFN equation to forecast the additional capital that it must raise.Which of the following conditions would cause the AFN to increase?
A)The company previously thought its fixed assets were being operated at full capacity, but now it learns that it actually has excess capacity.
B)The company increases its dividend payout ratio.
C)The company begins to pay employees monthly rather than weekly.
D)The company's profit margin increases.
E)The company decides to stop taking discounts on purchased materials.

Question

Quizplus · Accepted Answer

Increasing the dividend payout ratio reduces the amount of retained earnings, which increases the need for external financing, thus increasing the Additional Funds Needed (AFN).

Company Expects Sales to Increase During the Coming Year, and It