Which of the Following Statements Is CORRECT

question 17

Multiple Choice

Which of the following statements is CORRECT?

• A) Since accounts payable and accrued liabilities must eventually be paid off,as these accounts increase,AFN as calculated by the AFN equation must also increase.
• B) Suppose a firm is operating its fixed assets at below 100% of capacity,but it has no excess current assets.Based on the AFN equation,its AFN will be larger than if it had been operating with excess capacity in both fixed and current assets.
• C) If a firm retains all of its earnings,then it cannot require any additional funds to support sales growth.
• D) Additional funds needed (AFN)are typically raised using a combination of notes payable,long-term debt,and common stock.Such funds are non-spontaneous in the sense that they require explicit financing decisions to obtain them.
• E) If a firm has a positive free cash flow,then it must have either a zero or a negative AFN.

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Definitions:

Retained Earnings Deficit

A negative balance in retained earnings, indicating that a company has more accumulated losses over time than accumulated profits.

Debit Balance

A situation where the total debits in an account exceed the total credits, indicating an excess of expenses or assets over income or liabilities.

Large Stock Dividend

A distribution of a significant number of additional shares to shareholders, usually as a percentage of the shares they already hold, which often dilutes the share value.

Outstanding Shares

The total number of shares of a corporation's stock that are currently owned by all shareholders, including share blocks held by institutional investors and restricted shares owned by the company’s officers.