6. Factors that affect the AFN equation Several factors affect a firm's need for external funds. Evaluate the effect of each following factor and place a check next to each factor that is likely to Increase a firm's need for external capital-that is, its AFN (additional funds needed). Check all that apply. The firm increases its dividend payout ratio. The firm improves its production system and increases its profit margin. The firm's inventory turnover decreases, with no effect on the sales forecast. Industrialization Automation Company has seen its profit margin eroded by increased competition over the last year, but its sales have remained steady. Assuming everything else is held constant, will this affect the firm's AFN? Yes, the decrease in profit margin will affect the firm's AFN even though its sales have remained constant. No, the firm's AFN will not be affected, because the firm's sales have remained constant