1. What of the following statements is not correct?

A. The higher the sales growth rate g is, the larger AFN will beother things held constant.

B. The higher the capital intensity ratio, the larger AFN will beother things held constant.

C. The higher the firms spontaneous liabilities, the smaller AFN will beother things held constant.

D. The higher the payout ratio, the larger AFN will be if other things held constant.

2. A firm has developed a forecasting model to estimate its AFN for the upcoming year. All else being equal, which of the following factors is most likely to lead to a decrease of the additional funds needed (AFN)?

A. A sharp increase in its net profit margin.

B. A sharp increase in its forecasted sales.

C. The company increases its dividend payout ratio.

D. The company discovers that it needs more capacity in its fixed assets.

3. Which of the following assumptions is assumed in the % of sales forecasting method?

A. All balance sheet assets accounts are tied directly to sales.

B. Accounts receivables and inventory are tied directly to sales.

C. Preferred stock and long-term debt are tied directly to sales.

D. Market value of equity are tied directly to sales.