Factors that affect the AFN equation

Several factors affect a firms 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 firms need for external capitalthat is, its AFN (additional funds needed). Check all that apply.

The firm increases its dividend payout ratio.

The firm previously thought its fixed assets were being operated at full capacity, but now it learns that it actually has excess capacity.

The firms inventory turnover decreases, with no effect on the sales forecast.

Road Weary Transportation 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 firms AFN?

No, the firms AFN will not be affected, because the firms sales have remained constant.

Yes, the decrease in profit margin will affect the firms AFN even though its sales have remained constant.