The presence of excess capacity increases the need for discretionary financing for any level of sales increase.

If there exist economies of scale in inventory investment, the percent of sales method is likely to overstate additional asset needs for a given increase in sales.

At the sustainable rate of growth, the company does not need any additional assets to support the increased sales.

Which of the following work to automatically reduce the need for discretionary financing as sales increase?

A firm is using the DFN model to forecast the additional capital that they need to raise because of a sales increase. Which of the following factors are likely to increase the DFN?

The first step involved in predicting financing needs is:

The process of planning future business actions and expressing those plans in a formal manner, usually in monetary terms, is called budgeting.

Accounts payable represent a spontaneous form of financing for a firm.

To determine the amount of discretionary funds needed, you would subtract the expected increase in liabilities from the sum of the expected increases in retained earnings and assets.

The Stuff Antique Store has current sales of $12 million and predicts next year's sales will grow to $16 million. Current assets are $3 million and fixed assets are $4 million. The firm's net profit margin is 6 percent after taxes. Presently, Stuff has $800,000 in accounts payable, $1.1 million in long-term debt, and $5 million (including $2.5 million in retained earnings) in common equity. Next year, Stuff projects that current assets and liabilities will rise in direct proportion to the forecasted sales, and that fixed assets will rise by $600,000. The Stuff Antique Store plans to pay dividends of $400,000 to common shareholders. What are Stuff's total financing needs and discretionary financing needs for the upcoming year?