Which of the Following Statements Is Correct

question 44

Multiple Choice

Which of the following statements is correct?

• A)When we use the AFN formula, we assume that the ratios of assets and liabilities to sales (A*/S₀ and L*/S₀) vary from year to year in a stable, predictable manner.
• B)Firms whose fixed assets are "lumpy" frequently have excess capacity, and this should be accounted for in the financial forecasting process.
• C)For a firm that uses lumpy assets, it is impossible to have small increases in sales without expanding fixed assets.
• D)When fixed assets are added in large, discrete units as a company grows, the assumption of constant ratios is more appropriate than if assets are relatively small and can be added in small increments as sales grow.

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