Question $1(2\mathrm{.}5$ points$)$

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The term "additional funds needed $($AFN$)"$ is generally defined as follows:

Question $1$ options:

a$)$

The amount of internally generated cash in a given year minus the amount of cash needed to acquire the new assets needed to support growth.

b$)$

The amount of assets required per dollar of sales.

c$)$

Funds that are obtained automatically from routine business transactions.

d$)$

Funds that a firm must raise externally from non$-$spontaneous sources, i$.$e$.,$ by borrowing or by selling new stock to support operations.

e$)$

A forecasting approach in which the forecasted percentage of sales for each balance sheet account is held constant.

Question $2(2\mathrm{.}5$ points$)$

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Which of the following assumptions is embodied in the AFN equation?

Question $2$ options:

a$)$

Accounts payable and accruals are tied directly to sales.

b$)$

Common stock and long$-$term debt are tied directly to sales.

c$)$

Fixed assets, but not current assets, are tied directly to sales.

d$)$

None of the firm's ratios will change.

e$)$

Last year's total assets were not optimal for last year's sales.

Question $3(2\mathrm{.}5$ points$)$

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Two firms with identical capital intensity ratios are generating the same amount of sales. However, Firm A is operating at full capacity, while Firm B is operating below capacity. If the two firms expect the same growth in sales during the next period, then Firm A is likely to need more additional funds than Firm B$,$ other things held constant.

Question $3$ options:

TrueFalse

Question $4(2\mathrm{.}5$ points$)$

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Spontaneous funds are generally defined as follows:

Question $4$ options:

a$)$

The amount of cash raised in a given year minus the amount of cash needed to finance the additional capital expenditures and working capital needed to support the firm's growth.

b$)$

Assets required per dollar of sales.

c$)$

Funds that arise out of normal business operations from its suppliers, employees, and the government, and they include immediate increases in accounts payable, accrued wages, and accrued taxes.

d$)$

A forecasting approach in which the forecasted percentage of sales for each item is held constant.

e$)$

Funds that a firm must raise externally through short$-$term or long$-$term borrowing and$/$or by selling new common or preferred stock.