Which of the Following Statements Is CORRECT

question 21

Multiple Choice

Which of the following statements is CORRECT?

• A) When fixed assets are added in large, discrete units as a company grows, the assumption of constant ratios is more appropriate than if assets are relatively small and can be added in small increments as sales grow.
• B) Firms whose fixed assets are "lumpy" frequently have excess capacity, and this should be accounted for in the financial forecasting process.
• C) For a firm that uses lumpy assets, it is impossible to have small increases in sales without expanding fixed assets.
• D) There are economies of scale in the use of many kinds of assets.When economies occur the ratios are likely to remain constant over time as the size of the firm increases.The Economic Ordering Quantity model for establishing inventory levels demonstrates this relationship.
• E) When we use the AFN equation, we assume that the ratios of assets and liabilities to sales (A₀*/S₀ and L₀*/S₀) vary from year to year in a stable, predictable manner.

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Definitions:

MC = ATC

A condition where the Marginal Cost of producing one more unit is exactly equal to the Average Total Cost, typically representing the point of productive efficiency.

Business Fundamentals

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Entrepreneurial Success

The achievement of desired goals and outcomes by an entrepreneur, typically measured by factors such as profitability, growth, and sustainability of a business venture.

Entrepreneurial Activities

Initiatives undertaken by individuals to launch, develop, and manage a business venture along with its risks in order to make a profit.