Which of the Following Statements Is CORRECT

question 35

Multiple Choice

Which of the following statements is CORRECT?

• A) Any forecast of financial requirements involves determining how much money the firm will need,and this need is determined by adding together increases in assets and spontaneous liabilities and then subtracting operating income.
• B) The AFN equation for forecasting funds requirements requires only a forecast of the firm's balance sheet.Although a forecasted income statement may help clarify the results,income statement data are not essential because funds needed relate only to the balance sheet.
• C) Dividends are paid with cash taken from the accumulated retained earnings account,hence dividend policy does not affect the AFN forecast.
• D) A negative AFN indicates that retained earnings and spontaneous capital are far more than sufficient to finance the additional assets needed.
• E) If assets and spontaneously generated liabilities are not projected to grow at the same rate as sales,then the AFN method will provide more accurate forecasts than the projected financial statement method.

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