Which of the Following Statements Is CORRECT

question 44

Multiple Choice

Which of the following statements is CORRECT?

• A) if a firm's assets are growing at a positive rate, but its retained earnings are not increasing, then it would be impossible for the firm's afn to be negative.
• B) if a firm increases its dividend payout ratio in anticipation of higher earnings, but sales and earnings actually decrease, then the firm's actual afn must, mathematically, exceed the previously calculated afn.
• C) higher sales usually require higher asset levels, and this leads to what we call afn. however, the afn will be zero if the firm chooses to retain all of its profits, i.e., to have a zero dividend payout ratio.
• D) dividend policy does not affect the requirement for external funds based on the afn equation.
• E) the sustainable growth rate is the maximum achievable growth rate without the firm having to raise external funds. in other words, it is the growth rate at which the firm's afn equals zero.

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Definitions:

Capacity

The maximum output that an organization can produce in a given period under normal conditions.

Job-Order Costing

A cost accounting system that accumulates costs per individual job or project to determine its profitability or cost-effectiveness.

Predetermined Overhead Rate

An estimated rate used to allocate overhead costs to products or services, based on a chosen activity base.

Automated Shaper

A machine tool controlled by computers, designed for shaping materials such as metals or wood.