The term "additional funds needed (AFN)" is generally defined as follows:
A) Funds that are obtained automatically from routine business transactions.
B) Funds that a firm must raise externally from non-spontaneous sources,i.e. ,by borrowing or by selling new stock,to support operations.
C) The amount of assets required per dollar of sales.
D) 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.
E) A forecasting approach in which the forecasted percentage of sales for each balance sheet account is held constant.

Question

Quizplus · Accepted Answer

Additional funds needed (AFN) refers to funds a company must raise externally from non-spontaneous sources, such as borrowing or selling new stock, in order to support its operations. This concept is relevant to businesses seeking to grow or expand, as they may require additional resources beyond what can be funded by internally generated cash flow. Option A is incorrect because funds obtained automatically from routine business transactions do not represent additional funding that a business needs. Option C is incorrect because it refers to the asset intensity ratio, which is a measure of asset utilization rather than funding requirements. Option D is incorrect because it does not accurately reflect the concept of AFN, as it focuses only on internal funding and does not consider external financing needs. Option E is incorrect because it describes a forecasting approach but is not directly related to the concept of AFN.

The Term "Additional Funds Needed (AFN)" Is Generally Defined as Follows