Final answer:
a) True. Paying off a loan early does not affect a company's EFN, as it primarily considers future funding needs related to growth and expansion plans. However, it can indirectly impact EFN if it improves the company's financial health and creditworthiness.
Step-by-step explanation:
The statement that paying off a loan early would not affect a company's EFN (External Financing Needed) is True. EFN is a measure of how much external funding a company needs to support its operations and growth. It is calculated based on the company's projected financial statements and assumptions, such as sales growth rate, profit margin, and asset turnover.
When a company pays off a loan early, it reduces its liabilities and interest expenses. This decrease in liabilities does not directly impact the EFN calculation, as EFN primarily considers the future funding needs related to sales growth and expansion plans. However, paying off a loan early can indirectly impact a company's EFN if it leads to better financial health and creditworthiness, potentially reducing the need for external financing in the future.
For example, if a company's higher credit rating due to early loan repayment allows it to secure favorable terms on future debt or attract investors, it may reduce the EFN by lowering the interest rates or need for external funding.