Gupta Corporation has forecasted its need for external funding in the following year. It needs to raise $2 million in either debt or equity. It would like to minimize its need for external funding without decreasing its projected growth. Which of the following would reduce its need for additional funding?
A)An increase in the dividend payout ratio
B)An increase in days' sales outstanding
C)An increase in accounts payable
D)A decrease in inventory turnover

Question

Quizplus · Accepted Answer

An increase in accounts payable means the company is taking longer to pay its suppliers, which provides more time for the company to generate cash flow and reduces the need for external funding. The other choices would not reduce the need for additional funding and may even increase it. An increase in dividend payout ratio means the company is distributing more cash to shareholders and would need to raise more funds to support growth. An increase in days' sales outstanding means the company is taking longer to collect payments from its customers, which reduces cash flow and increases the need for external funding. A decrease in inventory turnover means the company is holding onto inventory for longer periods, which ties up cash and increases the need for external funding.

Gupta Corporation Has Forecasted Its Need for External Funding in the Following