AFN Equation Assumes That the Ratios of Assets and Liabilities

question 27

True/False

AFN equation assumes that the ratios of assets and liabilities to sales remain constant over time However, this assumption can be relaxed when we use the forecasted financial statement method Three conditions where constant ratios cannot be assumed are economies of scale, lumpy assets, and excess capacity.

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Definitions:

Risk-neutral

A characteristic of individuals or entities that exhibit indifference between choices with differing levels of risk, focusing solely on expected outcomes.

Expected Utility

A strategy in economics and game theory where individuals choose the option with the highest expected benefit, taking into account all future outcomes.

Risk-neutral

Refers to a mindset or condition where an individual or entity is indifferent to risk when making investment decisions, focusing instead on the potential returns without giving additional weight to the possibility of loss.

Expected Utility

a theory in economics that quantifies how choices are made when outcomes are uncertain, aiming to maximize the expected utility rather than merely the expected monetary value.