Yonsei University

BUSINESS 2044

Percent of sales method
1. The percent of sales method is based on which of the following assumptions?
a. All balance sheet accounts are tied directly to sales.
b. Most balance sheet accounts are tied directly to sales.
c. The current level of total assets is optimal for the current sales
level.
d. Statements a and c above are correct.
e. Statements b and c above are correct.
Additional funds needed
2. A company is forecasting an increase in sales and is using the AFN model to
forecast the additional capital that they need to raise. Which of the
following factors are likely to increase the additional funds needed (AFN)?
a. The company has a lot of excess capacity.
b. The company has a high dividend payout ratio.
c. The company has a lot of spontaneous liabilities that increase as sales
increase.
d. The company has a high profit margin.
e. All of the statements above are correct.
Additional funds needed
3. Jefferson City Computers has developed a forecasting model to determine the
additional funds it needs in the upcoming year. All else being equal,
which of the following factors is likely to increase its additional funds
needed (AFN)?
a. A sharp increase in its forecasted sales and the company’s fixed assets
are at full capacity.
b. A reduction in its dividend payout ratio.
c. The company reduces its reliance on trade credit that sharply reduces
its accounts payable.
d. Statements a and b are correct.
e. Statements a and c are correct.
Additional funds needed
4. Which of the following is likely to increase the additional funds needed
(AFN) in a given year?
a. The company reduces its dividend payout ratio.
b. The company’s profit margin increases.
c. The company decides to reduce its reliance on accounts payable as a
form of financing.
d. The company is operating well below full capacity.
e. All of the statements above are correct.
Additional funds needed
5. All else equal, which of the following is likely to increase a company’s
additional funds needed (AFN)?
a. An increase in its dividend payout ratio.
b. The company has a lot of excess capacity.
c. Accounts payable increase faster than sales.
d. All of the statements above are correct.
e. None of the statements above is correct.
Additional funds needed
6. Additional funds needed are best defined as:
a. Funds that are obtained automatically from routine business transactions.
b. Funds that a firm must raise externally through borrowing or by selling
new common or preferred stock.
c. The amount of assets required per dollar of sales.
d. The amount of cash generated in a given year minus the amount of cash
needed to finance the additional capital expenditures and working
capital needed to support the firm’s growth.
e. A forecasting approach in which the forecasted percentage of sales for
each item is held constant.
Additional funds needed
7. Which of the following is likely to decrease the additional funds needed
(AFN) in a given year?
a. The company increases its retention ratio.
b. The company’s profit margin increases.
c. The company’s sales growth is reduced.
d. Both statements b and c are correct.
e. All of the statements above is correct.
Forecasting concepts
8. Which of the following statements is most correct?
a. One of the key steps in the developm