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 capitalthat is, its AFN (additional funds needed).Check all that apply.

• The firm switches its supplier for the majority of its raw materials. The new supplier offers less favorable credit terms and thus reduces the trade credit available to the firm, resulting in a reduction in accounts payable.
• The firm was planning on expanding its production facility, but its management recently decided that the expansion was not necessary.
• The firm increases its dividend payout ratio.

Dividends to common shareholders are paid out of after-tax earnings. Do these payouts affect a firm's AFN?

• Yes, dividends still affect a firm's AFN even though they are paid out of after-tax earnings.
• No, dividends do not affect a firm's AFN, because they are paid out of after-tax earnings.

Answer rating: 100% (QA)

Factors that are likely to increase a firms need for external capital AFN a... View the full answer