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:

Organizations

Groups or entities comprising multiple individuals working collectively towards common goals or objectives, structured in a system of roles and responsibilities.

Stakeholder Assessment

A process to evaluate the interests, influence, and implications for all parties with a vested interest in a project or business decision.

Commitment Approach

A strategy or philosophy that focuses on fostering dedication and loyalty among members of an organization or group.

Environmental Issues

Problems related to the degradation of the Earth's ecosystems, including pollution, climate change, deforestation, loss of biodiversity, and other detrimental impacts on the natural environment.