The AFN formula would be appropriate if,in a regression of each asset and spontaneous liability on sales,the regression line was linear and passed through the origin.

Question

Quizplus · Accepted Answer

The AFN (Additional Funds Needed) formula is based on the assumption that certain balance sheet items vary directly with sales. If the regression of assets and spontaneous liabilities on sales is linear and passes through the origin, it implies a direct proportionality, which aligns with the assumptions underlying the AFN formula.

The AFN Formula Would Be Appropriate If,in a Regression of Each