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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