Which of the Following Statements Is Most Correct

question 4

Multiple Choice

Which of the following statements is most correct?

• A) One of the key steps in the development of pro forma financial statements is to identify those assets and liabilities which increase spontaneously with net income.
• B) The first, and most critical, step in constructing a set of pro forma financial statements is establishing the sales forecast.
• C) Pro forma financial statements as discussed in the text are used primarily to assess a firm's historical performance.
• D) The capital intensity ratio reflects how rapidly a firm turns over its assets and is the reciprocal of the fixed assets turnover ratio.
• E) The percentage of sales method produces accurate results when fixed assets are lumpy and when economies of scale are present.

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Definitions:

Demand Curve

A graphical representation that shows the relationship between the price of a good or service and the quantity demanded by consumers.

Profit

The financial gain received when the revenue from selling goods or services exceeds the cost of producing these goods or services.

Marginal Revenue

The additional revenue a business receives from selling one more unit of a good or service.

Average Cost

The per-unit cost obtained by dividing total production expenses by the number of produced units.