Which of the Following Statements Is CORRECT

question 3

Multiple Choice

Which of the following statements is CORRECT?

• A) 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.
• B) Dividends are paid with cash taken from the accumulated retained earnings account, hence dividend policy does not affect the AFN forecast.
• C) A negative AFN indicates that retained earnings and spontaneous liabilities are far more than sufficient to finance the additional assets needed.
• D) If the ratios of assets to sales and spontaneous liabilities to sales do not remain constant, then the AFN equation will provide more accurate forecasts than the forecasted financial statements method.
• E) 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.

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Definitions:

Central Route

A pathway of persuasion that involves thoughtful consideration of the arguments presented, leading to lasting attitude change.

Cognitive Dissonance

A psychological phenomenon involving conflicting attitudes, beliefs, or behaviors that cause mental discomfort leading to an alteration in one of the attitudes, beliefs, or behaviors to reduce the discomfort.

Self-Perception Theory

A theory suggesting that individuals develop their attitudes and feelings by observing their own behavior and concluding what attitudes must have caused them.

Observational Learning

The process of acquiring knowledge, behaviors, or skills by watching and imitating others rather than through direct experience.