When we use the AFN equation to forecast the additional funds needed (AFN), we are implicitly assuming that all financial ratios are constant. If financial ratios are not constant, regression techniques can be used to improve the financial forecast.

A) True

B) False

A True

Explanation: Since Additional funds needed (AFN) is calculated as the excess of required increase in assets over the increase in liabilities and increase in earnings retained. Hence regression will be the best option to work things out.

Regression : This is a statistical process for evaluating the relationships between the dependent variables or criterion variables and one or more independent variables or predictors. Regression analysis describes the changes in criterions in relation to changes in select predictors. Regression techniques includes the following:

1) Logistic regression

2) Linear regression

3) Polynomial regression

4) Stepwise regression

5) Stepwise regression

6) Elastic Net regression

7) Lasso regression

8) Ridge regression

Yes it is true that if financial ratios are not constant, regression techniques can be used to improve the financial forecast.

Explanation:

Additional funds needed (AFN) is calculated as the excess of required increase in assets over the increase in liabilities and increase in retained earnings.

Additional funds needed method of financial planning assumes that the company's financial ratios do not change.

Assuming that financial ratios are constant, Regression analysis will compare the independent variables as it related to the dependent variable which will be used for prediction and improve financial forecasting.