Consider a Firm That Employs Some Resources That Are Owned

question 19

Multiple Choice

Consider a firm that employs some resources that are owned by the firm.When accounting profit is zero,economic profit

• A)must also equal zero.
• B)is sure to be positive.
• C)must be negative and shareholder wealth is reduced.
• D)cannot be computed accurately,but the firm is breaking even nonetheless.

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Definitions:

Sustainable Growth Rate

The maximum rate at which a company can grow its sales, earnings, and dividends without incurring new debt.

Debt-equity Ratio

An indicator that differentiates the financing portion between debt and equity for company assets.

External Financing

Funds a company acquires from outside sources, such as bank loans, issuing bonds, or selling stock, to support its operations and growth initiatives.

Full Capacity

Full capacity refers to the maximum level of output that a company can sustain over a period, utilizing all available resources efficiently.