Explain the Difference Between Fixed Costs in the Short Run

question 105

Essay

Explain the difference between fixed costs in the short run and fixed costs in the long run.

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Definitions:

Additional Debt Financing

Raising more funds for a company through borrowing, which may increase the company's debt-to-equity ratio.

Return on Sales

A financial metric that measures the efficiency of a company in generating profits from its revenue, calculated as net income divided by total sales.

Sustainable Growth Rate

The rate at which a firm can grow if none of its financial ratios change and it doesn’t raise any new equity by selling stock. The growth in equity created by earnings retained.

Dividend Payout Ratio

A financial metric that measures the percentage of net income a firm pays out to its shareholders as dividends.