Which of the following will increase the additional funds needed from external sources?
A)The firm's profit margin increases
B)The firm's dividend payout ratio decreases
C)The firm's debt ratio decreases
D)The firm becomes more capital intensive

Question

Quizplus · Accepted Answer

When a firm becomes more capital intensive, it invests more in fixed assets such as equipment or property, which require higher investment. This implies that the firm will require additional funds from external sources to finance these investments. Increasing profit margin (A) would decrease the need for external funds, as the company is generating more internal funds. A decrease in dividend payout ratio (B) would also decrease the need for external funds as the company is retaining more earnings. Similarly, a decrease in debt ratio (C) would imply that the firm is relying more on internal funds and less on external funds.

Which of the Following Will Increase the Additional Funds Needed