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.

---

Definitions:

Internal Control Structure

The mechanisms, policies, and procedures implemented by a company to safeguard its assets, enhance the reliability of its accounting records, and increase efficiency and compliance with laws and regulations.

Management

The process of directing and controlling a group or organization to achieve specific goals or objectives efficiently and effectively.

Cash Short and Over

An account that records discrepancies between actual cash received and the expected amount, often due to errors or theft.

Cash Shortages

Instances when the actual cash available is less than the amount expected or needed.