A Firm's Net Working Capital and All of Its Expenses

question 23

Multiple Choice

A firm's net working capital and all of its expenses vary directly with sales.The firm is operating currently at 96 percent of capacity.The firm wants no additional external financing of any kind.Which one of the following statements related to the firm's pro forma statements for next year must be correct?

• A)Total liabilities will remain constant at this year's value.
• B)The maximum rate of sales increase is 4 percent.
• C)The firm cannot exceed its internal rate of growth.
• D)The projected owners' equity will equal this year's ending equity balance.
• E)Fixed assets must remain constant at the current level.

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Definitions:

Pure Nondiscriminating Monopolist

A market situation where a single seller sells a product to all buyers at the same price without price discrimination.

Allocative Efficiency

A state of the economy in which production represents consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a utility to consumers equal to the cost of producing it.

Productive Efficiency

A situation in which a good or service is produced at the lowest possible cost.

Monopolistic Producer

A single producer that has control over the market for a product or service, often characterized by a lack of close substitutes.