Several factors affect a firm\'s need for external funds. Evaluate the effect of

Question

Several factors affect a firm's need for external funds. Evaluate the effect of each following factor and place a check next to each factor that is likely to increase a firm's need for external capital-that is, its AFN (additional funds needed). Check all that apply. The firm's inventory turnover decreases, with no effect on the sales forecast. The firm was planning on expanding its production facility, but its management recently decided that the expansion was not necessary. The firm's forecasted sales are unexpectedly increased. Drugal Brewing Co. has seen its profit margin eroded by increased competition over the last year, but its sales have remained steady. Assuming everything else is held constant, will this affect the firm's AFN? Yes, the decrease in profit margin will affect the firm's AFN even though sales have remained constant. No, the firm's AFN will not be affected, because the firm's sales remained constant.

Explanation / Answer

The factors which affects the firms for external funds are :

option A and option C because any changes in increase or decrease of inventory turnover or sales forcasted will have an impact to the additional funds needed (AFN) hence when the production was planned and stopped will not have any impact.

Drugal brewing co willl not have any impact to the additional funds needed as there is mere a eroded in profit margin but the sales remains constant hence no affect to AFN.

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