Asked by Alyssa Squissato on Jul 17, 2024
Verified
Which assumption is embodied in the AFN formula forecasting method?
A) All balance sheet accounts are tied directly to sales.
B) Accounts payable and accruals are tied directly to sales.
C) Common stock and long-term debt are tied directly to sales.
D) Fixed assets, but not current assets, are tied directly to sales.
AFN Formula
Additional Funds Needed formula, a financial tool used to estimate the additional amount of financing a firm will require in the future.
Forecasting Method
Techniques used to predict future aspects of a business or the economy, from sales to macroeconomic trends.
- Grasp the concepts and applications of the Additional Funds Needed (AFN) formula.
Verified Answer
JY
Jenna YuranJul 19, 2024
Final Answer :
B
Explanation :
The AFN (Additional Funds Needed) formula assumes that accounts payable and accruals are tied directly to sales, and that the level of investment in these accounts must increase proportionally with an increase in sales. Other balance sheet accounts, such as common stock and long-term debt, are assumed to be fixed or dependent on management decisions, rather than on changes in sales.
Learning Objectives
- Grasp the concepts and applications of the Additional Funds Needed (AFN) formula.
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