A Firm Is Currently Operating at Full Capacity

question 76

Multiple Choice

A firm is currently operating at full capacity. Net working capital, costs, and all assets vary directly with sales. The firm does not wish to obtain any additional equity financing. The dividend payout ratio is constant at 40 percent. When the firm compiles a pro forma statement, the plug variable is most likely going to be:

• A) Accounts payable.
• B) Long-term debt.
• C) Fixed assets.
• D) Retained earnings.
• E) Common stock.

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Definitions:

Amortization of Bond Premium

The gradual expense recognition of the premium paid over par value for a bond over its life, reducing the bond investment value.

Discount on Bonds Payable

The shortfall between a bond's listed face value and the price it achieves in the market when it ends up selling for less than that face value.

Face Amount

The face amount is the nominal or dollar value printed on a financial instrument like a bond or insurance policy, representing the amount due at maturity or the coverage amount.

Bond Redemption

A financial term referring to the process of repaying the principal amount of a bond at its maturity date.