Considering each action independently and holding other things constant, which of the following reduces a firm's need for additional capital?
A) An increase in the dividend payout ratio
B) A decrease in the days sales outstanding
C) A decrease in the profit margin
D) An increase in expected sales growth
E) A decrease in the accrual accounts (accrued wages and taxes)

Question

Quizplus · Accepted Answer

A decrease in the days sales outstanding means that the firm is collecting its account receivables quickly, which reduces the need for additional capital. Option A increases the distribution of cash, which may increase the need for more capital. Option C implies a reduction in profitability and may lead to additional requirements for capital. Option D suggests that the firm will need more capital to finance expected sales growth. Option E implies a decrease in liabilities, which reduces the need for additional capital, but it is not as strong as B in reducing capital needs.

Considering Each Action Independently and Holding Other Things Constant, Which