Gupta Corporation has forecasted its need for external funding in the following year. It needs to raise $2M 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 will allow Gupta Corporation to delay payment to its suppliers, thereby reducing the amount of cash it needs to meet its operating expenses. This will reduce its need for external funding. Choices A, B, and D will have the opposite effect, either reducing cash inflows or increasing cash outflows, and therefore increasing the need for external funding.

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