(126) Suppose a firm makes the policy changes listed below. If a change means that external, nonspontaneous...
Question:
(12–6) Suppose a firm makes the policy changes listed below. If a change means that external, nonspontaneous financial requirements (AFN) will increase, indicate this by a
(+); indicate a decrease by a (−); and indicate no effect or an indeterminate effect by a
(0). Think in terms of the immediate, short-run effect on funds requirements.
500 Part 5: Corporate Valuation and Governance
a. The dividend payout ratio is increased.
b. The firm decides to pay all suppliers on delivery, rather than after a 30-day delay, to take advantage of discounts for rapid payment.
c. The firm begins to offer credit to its customers, whereas previously all sales had been on a cash basis.
d. The firm’s profit margin is eroded by increased competition, although sales hold steady.
e. The firm sells its manufacturing plants for cash to a contractor and simultaneously signs an outsourcing contract to purchase from that contractor goods that the firm formerly produced.
f. The firm negotiates a new contract with its union that lowers its labor costs without affecting its output.
Step by Step Answer:
Financial Management Theory And Practice
ISBN: 9781439078105
13th Edition
Authors: Eugene F. Brigham, Michael C. Ehrhardt