Growth in Revenue Is an Important Factor for Many Companies

question 70

Multiple Choice

Growth in revenue is an important factor for many companies.The desired outcome in many businesses is for revenue and possibly net income to increase at a rate at least equal to the prior year's increase.Which of the following best explains this desire?

• A)If the company does not meet this level of growth,it is an indication that the company may not be able to meet the dividend expectations of investors
• B)Outsiders,particularly stockholders expect this level of growth,and if companies fail to meet these targets,their stock price may drop as investors sell their stock and find other companies who can meet the growth level desired
• C)Management is concerned that failure to achieve expected levels of growth may result in management not receiving anticipated bonuses
• D)Management is concerned that if the company does not achieve the expected increase in growth,that the auditors will demand a higher fee and expend greater effort in attempting to find misstatements in the financial statements

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Definitions:

Mutually Exclusive

Situations or choices where the selection of one option precludes the selection of another, often used in decision-making processes.

Crossover Rate

The point at which two projects have the same net present values and discounted cash flows, used in assessing investment options.

WACC

The Weighted Average Cost of Capital represents a calculation of a company's capital costs, where each capital category is weighted in proportion to its total makeup.

NPV

Net Present Value (NPV) is a financial metric that calculates the present value of all cash flows, both incoming and outgoing, associated with a project or investment.