Short-run effect on funds requirements

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Reference no: EM131460990

Suppose a firm makes the following policy changes. If the change means that external nonspontaneous financial requirements (AFN) will increase, indicate this with a ( ); indicate a decrease with a ( ); and indicate an indeterminate or negligible effect with a (0). Think in terms of the immediate short-run effect on funds requirements.

a. The dividend payout ratio is increased.

b. Rather than produce computers in advance, a computer company decides to produce them only after an order has been received.

c. The firm decides to pay all suppliers on delivery, rather than after a 30-day delay, to take advantage of discounts for rapid payment.

d. The firm begins to sell on credit. (Previously, all sales had been on a cash basis.)

e. The firm’s profit margin is eroded by increased competition; sales are steady.

f. Advertising expenditures are stepped up.

g. A decision is made to substitute long-term mortgage bonds for short-term bank loans.

h. The firm begins to pay employees on a weekly basis. (Previously, it had paid employees at the end of each month.)

Reference no: EM131460990

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