You Are Comparing the Current Income Statement of a Firm

question 45

Multiple Choice

You are comparing the current income statement of a firm to the pro forma income statement for next year.The pro forma is based on a four percent increase in sales.The firm is currently operating at 85 percent of capacity.Net working capital and all costs vary directly with sales.The tax rate and the dividend payout ratio are fixed.Given this information,which one of the following statements must be true?

• A)The projected net income is equal to the current year's net income.
• B)The tax rate will increase at the same rate as sales.
• C)Retained earnings will increase by four percent over its current level.
• D)Total assets will increase by less than four percent.
• E)Total liabilities and owners' equity will increase by four percent.

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Definitions:

Oligopolistic Firms

Companies that operate in an oligopoly, a market structure characterized by a small number of firms controlling the majority of the market share.

Government Funding

Financial resources provided by the government for specific projects, programs, or sectors, often aimed at achieving public policy goals.

Four-Firm Concentration Ratios

A measure indicating the combined market share of the four largest firms in an industry, used to assess the degree of market competition.

R&D Expenditures

Funds allocated for conducting research and development with the aim of innovation and improving products or services.