Suppose a fiRm Is Working at Full Capacity and That

question 217

Multiple Choice

Suppose a firm is working at full capacity and that assets, costs, and all liabilities are tied directly to the level of sales. In addition, the firm pays out all its earnings as dividends, and sales are expected
To increase by 10% next period. The firm is financed half with equity and half with debt. The external
financing needed to support this growth:

• A) Is zero since all liabilities are tied directly to the level of sales?
• B) Depends on the profit margin.
• C) Is equal to half the dollar increase in assets.
• D) Is equal to twice the dollar increase in liabilities.
• E) Is equal to the growth rate times total assets.

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