Question

A company raised $2 million in Long-Term Debt, they recorded this increase of $2M in cash...

A company raised $2 million in Long-Term Debt, they recorded this increase of $2M in cash and $2M in LTD.

After this, what is the net impact on the Discretionary Financing Needed?

No change, increase/decrease $2M, or not recorded

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Answer #1

Answer: No change

Discretionary Financing Needs or additional finance required is the financial analysis tool to know the additional fund required by the firm. It is calculated as the difference between total assets, total liabilities and owner's equity, (Projected Total Assets - Projected Total Liabilities - Projected Owner's equity).

In the above case the company raised fund as Long Term Debt which results in increase of $ 2 million in cash (Asset) and increase of $ 2 million in Long Term Debt (Liability). Which means by applying the above formula of discretionary financing needed (DFN) as Assets and Liabilities increase simultaneously with the same amount ultimately there will be no change in DFN.

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