Purchase Solution

The Effect of Dividend Payouts on Additional Funds Needed

Not what you're looking for?

Ask Custom Question

Which of the following statements is correct about the effect of the dividend payout ratio on the Additional Funds Needed (AFN)?

A. A smaller dividend payout means less retained earnings so AFN would decrease

B. A smaller dividend payout means more retained earnings so AFN would decrease

C. A smaller dividend payout means more retained earnings so the firm would automatically reduce long-term debt and have to increase AFN.

D. A smaller dividend payout means more retained earnings so AFN would increase.

Purchase this Solution
Solution Summary

This solution discusses the computation of Additional Funds Needed and the effect of changes in the dividend payout ratio on that amount.

Solution Preview

The basic formula for Additional Funds Needed is AFN = Projected increase in Assets - Spontaneous increase in liabilities:

Any Increase in Retained Earnings. This is because additional funds are needed to ...

Purchase this Solution
Free BrainMass Quizzes
Paradigms and Frameworks of Management Research

This quiz evaluates your understanding of the paradigm-based and epistimological frameworks of research. It is intended for advanced students.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Managing the Older Worker

This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce

Business Processes

This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.

View More Free Quizzes
Related BrainMass Solutions

  • Additional Funds Needed

    If the dividend payout is only 15%, what effect will this growth have on funds?

  • What are the Determinants of Dividend Payouts?

    Brigham, Gapenski and Ehrhardt (1999) in their study on the signaling effect submit that it is often not easy to tell if the signaling effect alone affects share performance or if dividend preferences of investors also is a factor.

  • Distributions to Shareholders

    The treasury stock can also be resold in the market if the additional funds are needed by the management (Kennon, n.d.).

  • Non spontaneous financial requirements

    ; and indicate no effect or an indeterminate effect by a (0). Think in terms of the immediate, short-run effect on funds requirements. AFN is Additional funds needed by an organization in the case of expansion.

  • Dividend Policy

    THE EFFECT OF INVESTMENT OPPORTUNITIES ON DIVIDEND POLICIES While comparing regulated and unregulated firms, we find some interesting results.

  • Additional Funds Needed

    The solution explains how to determine the amount of Additional Funds Needed (AFN).

  • Balance Sheet Items with Sales,Profit Margin and Dividend Policy

    of additional funds needed (on the Y-axis).

  • The Additional Funds Needed equation (AFN)

    Change in Retained Earnings = Profit Margin on Sales - Dividend = 5% of S - 50% *(5% of S), that is 2.5% of S. (Given: Profit Margin on Sales = 5%; Dividend Payout 50%).

  • Additional Funds Needed (AFN)

    L* is 500,000 which is accounts payable and accrued liabilities Use the Additional Funds Needed formula to forecast Carter's additional funds needed for the coming year.

View More Related Solutions