A company expects sales to increase during the coming year, and it is using the AFN equation to forecast the additional capital that it must raise. Which of the following conditions would cause the AFN to increase?

Question

Quizplus · Accepted Answer

An increasing dividend payout ratio means that more earnings are being paid out to shareholders as dividends rather than being retained by the company, which would reduce the amount of capital available for financing growth. Therefore, the company would need to raise more funds externally, increasing the AFN. The other options would not directly affect the amount of external financing needed as measured by the AFN equation.

A Company Expects Sales to Increase During the Coming Year