Q. 1. Because dividends are paid after taxes from retained earnings, dividends a

Question

Q. 1. Because dividends are paid after taxes from retained earnings, dividends are not included in the percentage of sales method of forecasting. True or False

2. If a firm retains all of its earnings, then it will not need any additional funds to support sales growth. True or False

3. The lower the profit margin, the lower the additional funds needed because less assets are needed to support existing sales. True or False

4. Suppose a firm is operating its fixed assets below 100 percent capacity but is at 100 percent with respect to current assets. If sales grow, the firm can offset the needed increase in current assets with its idle fixed assets capacity. True or False

5. Since accounts payable and accruals must eventually be paid, as these accounts increase, AFN also increases True or False

6. Any firm with a positive growth rate in sales will require some amount of external funding (AFN) to support the growth. True or False

7. The term "spontaneously generated funds" generally refers to increases in the cash account that result from growth in sales, assuming the firm is operating with a positive profit margin. True or False

Explanation / Answer

. Because dividends are paid after taxes from retained earnings, dividends are not included in the percentage of sales method of forecasting. False

2. If a firm retains all of its earnings, then it will not need any additional funds to support sales growth. False

3. The lower the profit margin, the lower the additional funds needed because less assets are needed to support existing sales. False

4. Suppose a firm is operating its fixed assets below 100 percent capacity but is at 100 percent with respect to current assets. If sales grow, the firm can offset the needed increase in current assets with its idle fixed assets capacity. False

5. Since accounts payable and accruals must eventually be paid, as these accounts increase, AFN also increases False

6. Any firm with a positive growth rate in sales will require some amount of external funding (AFN) to support the growth. True

7. The term "spontaneously generated funds" generally refers to increases in the cash account that result from growth in sales, assuming the firm is operating with a positive profit margin. False

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