Which of the following statements is CORRECT?

(A) A negative AFN indicates that retained earnings and spontaneous capital are far more than sufficient to finance the additional assets needed.
(B) Any forecast of financial requirements involves determining how much money the firm will need, and this need is determined by adding together increases in assets and spontaneous liabilities and then subtracting operating income.
(C) Dividends are paid with cash taken from the accumulated retained earnings account, hence dividend policy does not affect the AFN forecast.
(D) The AFN equation for forecasting funds requirements requires only a forecast of the firm's balance sheet. Although a forecasted income statement may help clarify the results, income statement data are not essential because funds needed relate only to the balance sheet.
(E) If assets and spontaneously generated liabilities are not projected to grow at the same rate as sales, then the AFN method will provide more accurate forecasts than the projected financial statement method.

AFN - Additional funds needed represents the funds needed by the company which shall be taken from external sources which are non spontaneous in nature.

Since it represents the external requirements, thus, when the balance is really high in retained earnings than what is actually needed it will be reflected as a negative AFN, that is negative additional funds needed.

In this case because the requirement will be fulfilled internally.