(126) Suppose a firm makes the policy changes listed below. If a change means that external, nonspontaneous...

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(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.

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Financial Management Theory And Practice

ISBN: 9781439078105

13th Edition

Authors: Eugene F. Brigham, Michael C. Ehrhardt

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