Question

Which of the following statements about the financial planning process is correct?

The additional funds needed (AFN) is estimated by summing the expected changes in assets and liabilities that fluctuate with sales and then subtracting the expected operating income.

The projected balance sheet method requires only the balance sheet to determine a firm's expected financial needs.

The decision as to how a firm should raise additional funds needed (AFN) to meet its financial goals depends on the ability of the firm to handle additional debt, conditions in financial markets, and restrictions imposed by existing debt agreements.

The projected balance sheet method of forecasting financial needs does not consider dividends paid to shareholders because these are after tax payments from retained earnings.

Financial forecasts generally do not consider forecasts of the economic prospects for the nation and the industry because these are factors that are beyond the control of the firm.

Answer 1

The decision as to how a firm should raise additional funds needed (AFN) to meet its financial goals depends on the ability of the firm to handle additional debt, conditions in financial markets, and restrictions imposed by existing debt agreements.