6. Factors that affect the AFN equation

Several factors affect a firms need for external funds. Evaluate the effect of each following factor and place a check next to each factor that is likely to increase a firms need for external capitalthat is, its AFN (additional funds needed). Check all that apply.

The firm increases its dividend payout ratio.

Management has decided that the firm needs to keep more inventory on hand throughout the year.

The firm was planning on expanding its production facility, but its management recently decided that the expansion was not necessary.

Accounts payable and accrued liabilities represent obligations that the firm must pay off. Assuming everything else holds constant, if they increase, the firms AFN will (increase or decrease) .