Which of the Following Statements Is Most Correct

question 19

Multiple Choice

Which of the following statements is most correct?

• A) The AFN formula method assumes that the balance sheet ratios of assets and liabilities to sales (A*/S0 and L*/S0) remain constant over time, while the percentage of sales method does not.
• B) When assets are added in large, discrete units as a company grows, then the assumption of constant ratios and steady growth rates is most appropriate.
• C) Temporary excess capacity can be characteristic of a firm that adds lumpy assets as it grows or one that experiences cyclical changes.
• D) For a firm that has lumpy assets, small increases in sales can be accommodated without expanding fixed assets, even when the firm is at capacity.
• E) The graphical relationship between assets and sales where economies of scale are present is always linear.

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Definitions:

Appraised Fair Value

Appraised fair value is the estimation of an asset's worth at a particular time, based on expert analysis and market conditions.

Cost

The amount of money or resources expended to acquire an asset or to produce a product or service.

Depreciated

Depreciation refers to the reduction in the value of an asset over time due to wear and tear or obsolescence.