6. Factors that affect the AFN equation Several factors affect a firm's 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 firm's need for external capitalthat is, its AFN (additional funds needed). Check all that apply. The firm increases its dividend payout ratio. The firm improves its production system and increases its profit margin. Management has decided that the firm needs to keep more inventory on hand throughout the year. Dividends to common shareholders are paid out of after-tax earnings. Do these payouts affect a firm's AFN? No, dividends do not affect a firm's AFN, because they are paid out of after-tax earnings. Yes, dividends still affect a firm's AFN even though they are paid out of after-tax earnings