Assets, Accounts Payable and Costs Are Proportional to Sales

question 200

Multiple Choice

Assets, accounts payable and costs are proportional to sales. Debt and equity are not. The sales of Douglass Enterprises are expected to increase by 14% next year. The firm is currently
Producing at full capacity. Management wants to maintain a constant debt-equity ratio and a
Constant dividend payout ratio. What is the external financing need?

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Definitions:

Component Costs

The expenditures involved in producing a product or service, segmented by parts such as labor, materials, or overhead.

Underlying Securities

Refers to the specific financial instruments (such as stocks, bonds, commodities, or currencies) that an option or other derivative contract is based upon.

Returns

The profit or loss generated from an investment, usually expressed as a percentage of the investment's initial cost.

Capital Structure

The composition of a company's funding through a mix of debt and equity securities.