Which of the Following Statements Is CORRECT

question 14

Multiple Choice

Which of the following statements is CORRECT?

• A) Since accounts payable and accrued liabilities must eventually be paid off, as these accounts increase, AFN as calculated by the AFN equation must also increase.
• B) Suppose a firm is operating its fixed assets at below 100% of capacity, but it has no excess current assets. Based on the AFN equation, its AFN will be larger than if it had been operating with excess capacity in both fixed and current assets.
• C) If a firm retains all of its earnings, then it cannot require any additional funds to support sales growth.
• D) Additional funds needed (AFN) are typically raised using a combination of notes payable, long-term debt, and common stock. Such funds are non-spontaneous in the sense that they require explicit financing decisions to obtain them.

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Definitions:

Risk-Free Asset

An investment with a guaranteed return, without any risk of financial loss.

Positive Rate

An interest rate or yield that is above zero, reflecting a positive return on investment.

Risk-Free Rate

The theoretical return on investment with no risk of financial loss, typically represented by the yield on government securities.

Actual Return

The real gain or loss that an investment has earned, including dividends, interest, and capital gains, over a specified time period.