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Suppose that in the control phase of the financial planning process a firm discovers it cannot...

Suppose that in the control phase of the financial planning process a firm discovers it cannot raise the funds that are required to meet the forecasted sales. In this situation, the firm should ______. a. use available cash to repay as many outstanding loans as possible b. scale back its projected level of operations c. reformulate its plans to increase retained earnings and to decrease the dividend payments to stockholders d. build up its inventory quickly e. expand its plant and equipment to the level necessary to meet the sales forecast

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Answer #1

Suppose that in the control phase of the financial planning process a firm discovers it cannot raise the funds that are required to meet the forecasted sales. In this situation, the firm should reformulate its plans to increase retained earnings and to decrease the dividend payments to stockholders

It is not obligatory to pay the shareholders. Retaining More money will help reduce the cost of raising money i.e. savings in floatation costs which makes the cost of capital cheap and the Weighted Average cost of capital can be reduced.

Option C is correct.

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