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Factors That Affect AFN

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Evaluate the effect of each of the factors listed below by itself and place a check next to each factor that is likely to increase a firm's need for external capital. Place a check next to each factor that increase a firm's AFN.

The firm improves its production system and increase its profit margin
The firm increases its dividend payout ratio.
The firm's forecast sales is unexpectedly increased.
The firm previously thought its fixed assets were being operated at full capacity, but now it learns that it actually has excess capacity.
The firm switches its supplier for the majority of its needed raw materials. The new supplier offers more favorable credit terms and thus extends more trade credit to the firm.
The firm's inventory turnover decreases, with no effect on the sales forecast.

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Solution Summary

The solution evaluates the effect of different factors that are likely to increase a firm's need for external capital.

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