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 profit margin.
C) A decrease in the days sales outstanding.
D) An increase in expected sales growth.
E) A decrease in the accrual accounts (accrued wages and taxes).

Question

Quizplus · Accepted Answer

Decreasing the days sales outstanding would reduce the firm's need for additional capital because it would result in faster collection of cash from sales, thereby increasing cash flow and reducing the need for external funding. Increasing the dividend payout ratio, decreasing profit margin, and increasing expected sales growth would all increase the need for additional capital. Decreasing accrual accounts would also not necessarily reduce the need for additional capital as it would depend on the specific accounts and their impact on cash flow.

Considering Each Action Independently and Holding Other Things Constant, Which