Which assumption is embodied in the AFN formula forecasting method?
A)All balance sheet accounts are tied directly to sales.
B)Accounts payable and accruals are tied directly to sales.
C)Common stock and long-term debt are tied directly to sales.
D)Fixed assets, but not current assets, are tied directly to sales.

Question

Quizplus · Accepted Answer

The AFN (Additional Funds Needed) formula assumes that accounts payable and accruals are tied directly to sales, and that the level of investment in these accounts must increase proportionally with an increase in sales. Other balance sheet accounts, such as common stock and long-term debt, are assumed to be fixed or dependent on management decisions, rather than on changes in sales.

Which Assumption Is Embodied in the AFN Formula Forecasting Method