If the Capital Intensity Ratio (A*/S0) of a Firm Actually

question 30

True/False

If the capital intensity ratio (A*/S0) of a firm actually decreases as sales increase, use of the percentage of sales method will typically understate the amount of additional funds required, other things held constant.

---

Definitions:

Invested Capital

Represents the total amount of money that shareholders and debt holders have invested in a company.

Gross Assets

The total value of all assets owned by an entity before deducting any liabilities or depreciation.

GAAP

Generally Accepted Accounting Principles, a standard framework of guidelines for financial accounting.

Earnings Benchmarks

Standards or metrics against which a company's profitability can be measured.