While external funding needs can be approximated by subtracting cash dividend payments from cash flow from operations,the decision is not simple because

Question

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Dividend policy is not always fixed, meaning the amount of cash dividend payments may vary from year to year, making it difficult to accurately estimate external funding needs. Moreover, there are legal and transaction costs associated with raising external capital, which may outweigh the benefits of relying solely on internal cash flows. Therefore, considering both (a) and (b) is necessary to make an informed decision about external funding needs. Choice (C) is incorrect because there are no restrictions on when a firm can raise external capital under the Securities Act of 1933.

While External Funding Needs Can Be Approximated by Subtracting Cash