In the percent-of-sales method, an increase in dividends?
A. will decrease required new funds.
B. more information is needed.
C. has no effect on required new funds.
D. will increase required new funds.
To determine the effect of an increase in dividends on required new funds using the percent-of-sales method, we need to understand how the method works.
The percent-of-sales method is a financial forecasting technique that estimates the funds needed for a company's upcoming financial period based on a percentage of its projected sales revenue. It assumes that certain expenses, such as cost of goods sold, operating expenses, and taxes, will be a fixed percentage of sales.
Now, let's consider the effect of an increase in dividends:
An increase in dividends is an outflow of cash from the company to its shareholders. It reduces the company's retained earnings, which is a part of the equity portion of the balance sheet. However, the percent-of-sales method focuses on estimating the funds needed from external sources to support the projected sales. Dividends, in this case, are not directly related to the funds needed from external sources.
Therefore, we can conclude that an increase in dividends has no effect on the required new funds calculated using the percent-of-sales method.
Hence, the correct answer is C. It has no effect on required new funds.