Which of the following statements about the financial planning process is correct?
A)The additional funds needed (AFN) is estimated by summing the expected changes in assets and liabilities that fluctuate with sales and then subtracting the expected operating income.
B)The projected balance sheet method requires only the balance sheet to determine a firm's expected financial needs.
C)The decision as to how a firm should raise additional funds needed (AFN) to meet its financial goals depends on the ability of the firm to handle additional debt, conditions in financial markets, and restrictions imposed by existing debt agreements.
D)The projected balance sheet method of forecasting financial needs does not consider dividends paid to shareholders because these are after tax payments from retained earnings.
E)Financial forecasts generally do not consider forecasts of the economic prospects for the nation and the industry because these are factors that are beyond the control of the firm.

Question

Quizplus · Accepted Answer

The decision as to how a firm should raise additional funds needed (AFN) to meet its financial goals depends on various factors such as the ability of the firm to handle additional debt, conditions in financial markets, and restrictions imposed by existing debt agreements. Therefore, option C is the correct statement. Option A is incorrect because the AFN is estimated by subtracting the expected operating income from the sum of expected changes in assets and liabilities that fluctuate with sales. Option B is incorrect because the projected balance sheet method requires both the income statement and balance sheet to determine a firm's expected financial needs. Option D is incorrect because the projected balance sheet method considers expected dividends to be paid. Option E is incorrect because economic prospects for the nation and the industry are important factors to consider in financial planning as they can impact the firm's financial performance.

Which of the Following Statements About the Financial Planning Process