Which of the Following Statements Is Most Correct

question 6

Multiple Choice

Which of the following statements is most correct?

• A) If the capital intensity ratio is high, this permits sales to grow more rapidly without much outside capital.
• B) The lower the profit margin, the lower the additional funds needed because less assets are needed to support existing sales.
• C) When positive economies of scale are present, linear balance sheet relationships no longer hold. As sales increase, a proportionately greater stock of assets is required to support the higher sales level.
• D) Technological considerations often require firms to add fixed assets in large, discrete units. Such assets are called lumpy assets and they affect the firm's financial requirements through the fixed assets/sales ratio at different sales levels.
• E) The percentage of sales method accounts for changing balance sheet ratios and thus, cyclical changes in the actual sales/assets ratio do not have an impact on financing requirements.

---

Definitions:

Accrue a Liability

The process of recognizing liabilities that have been incurred but not yet paid or recorded in the financial statements.

Current Maturities

The portion of a company’s long-term debt that is due to be paid within the next fiscal year, often classified under current liabilities.

Long-term Debt

Financial obligations owed by a company that are due more than one year in the future, typically including bonds, long-term loans, and lease liabilities.

Internal Control

The processes designed to ensure the reliability of financial reporting, effectiveness and efficiency of operations, and compliance with laws and regulations.