Suppose that in the control phase of the financial planning process a firm discovers it cannot raise the funds that are required to meet the forecasted sales. In this situation, the firm should ______.
A)use available cash to repay as many outstanding loans as possible
B)scale back its projected level of operations
C)expand its plant and equipment to the level necessary to meet the sales forecast
D)build up its inventory quickly
E)reformulate its plans to increase retained earnings and to decrease the dividend payments to stockholders

Question

Suppose that in the control phase of the financial planning process a firm discovers it cannot raise the funds that are required to meet the forecasted sales. In this situation, the firm should ______. 
A)use available cash to repay as many outstanding loans as possible
B)scale back its projected level of operations
C)expand its plant and equipment to the level necessary to meet the sales forecast
D)build up its inventory quickly
E)reformulate its plans to increase retained earnings and to decrease the dividend payments to stockholders

Quizplus · Accepted Answer

If the firm cannot raise the funds required to meet the forecasted sales, it should scale back its projected level of operations. This means that the firm should reduce its planned expenditures and operations to a level that can be financed with the available funds. This will help the firm avoid financial distress or bankruptcy. Using available cash to repay loans, expanding plant and equipment, building up inventory, or reformulating plans to increase retained earnings are unlikely to be effective solutions in the short term.

Suppose That in the Control Phase of the Financial Planning