External Funding Requirements Can Be Estimated Using an Equation Called

question 111

Multiple Choice

External funding requirements can be estimated using an equation called the EFR relationship. The simple concept behind this equation is that funds will be needed to the extent of forecasted:

• A)growth in assets minus new retained earnings.
• B)growth in sales minus all current liabilities minus all retained earnings.
• C)assets minus current liabilities minus new retained earnings.
• D)growth in assets minus growth in current liabilities minus new retained earnings.

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Definitions:

Market Price

The market price at which you can currently buy or sell an asset or service.

Interest Tax Savings

The reduction in tax payments resulting from the deduction of interest payments on debt from taxable income.

Discount Rate

In DCF analysis, the rate used to calculate the present worth of future cash flows.

NOPAT

NOPAT (Net Operating Profit After Taxes) is a financial metric that calculates a company's potential cash earnings if it had no debt, focusing on its operational efficiency.