While External Funding Needs Can Be Approximated by Subtracting Cash

question 60

Multiple Choice

While external funding needs can be approximated by subtracting cash dividend payments from cash flow from operations,the decision is not simple because

• A) dividend policy is not fixed
• B) there are legal costs to raising capital externally than by retaining internal cash flow
• C) The Securities Act of 1933 only allows external capital to be raised during certain months of the year. If a firm needs funds at another time it must use internal sources.
• D) None of the above
• E) both (a) and (b)

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Definitions:

Fixed Asset

Long-term tangible assets, such as machinery, buildings, and land, used in the operation of a business that are not expected to be consumed or converted into cash within a year.

Net Income

The net income of a company, which is the remaining amount of total revenues after deducting all expenses, taxes, and costs.

Net Cash Flows

The difference between a company's cash inflows and cash outflows during a specific period, reflecting its ability to generate cash.

Cash Payback Period

The time it takes for a business to recuperate its investment in a project, measured by the flow of cash into the organization.