Which of the Following Statements Is CORRECT

question 23

Multiple Choice

Which of the following statements is CORRECT?

• A) 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.
• B) 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.
• C) Firms whose fixed assets are "lumpy" frequently have excess capacity,and this should be accounted for in the financial forecasting process.
• D) For a firm that uses lumpy assets,it is impossible to have small increases in sales without expanding fixed assets.
• E) Regression techniques cannot be used in situations where excess capacity or economies of scale exist.

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Definitions:

Standard Deviation

A statistical measure of the dispersion or variability in a dataset, commonly used in finance to measure the volatility or risk associated with a particular investment.

Optimal

Referring to the most favorable or advantageous condition or level.

Optimal Risky Portfolio

A portfolio composition that offers the highest expected return for a given level of risk or the lowest risk for a given level of expected return.

Risk-Free Rate

The rate of return on an investment with zero risk, typically represented by government bonds.