When Using the Percent-Of-Sales Method in Forecasting Funds Needed, Which

question 37

Multiple Choice

When using the percent-of-sales method in forecasting funds needed, which of the following is not true?

• A) As the dividend payout ratio decreases, the required new funds also increase.
• B) Required new funds decrease as profits margins increase.
• C) Required new funds increase as the dividend payout decreases.
• D) As the tax rate increases, the required new funds increase.

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Definitions:

Cash Inflows

Money received by a business from its operations, investments, or financing activities.

Investment Outflows

Money expended on acquiring or investing in assets with the expectation of generating future returns.

Uneven Cash Flows

Cash receipts and payments that vary in amount and do not occur at regular intervals, challenging budgeting and forecasting.

Net Present Value

A calculation that compares the present value of cash inflows to the present value of cash outflows over a period of time, used in capital budgeting to assess the profitability of an investment.