A firm's net working capital and all of its expenses vary directly with sales.The firm is operating currently at 96 percent of capacity.The firm wants no additional external financing of any kind.Which one of the following statements related to the firm's pro forma statements for next year must be correct?
A)Total liabilities will remain constant at this year's value.
B)The maximum rate of sales increase is 4 percent.
C)The firm cannot exceed its internal rate of growth.
D)The projected owners' equity will equal this year's ending equity balance.
E)Fixed assets must remain constant at the current level.

Question

Quizplus · Accepted Answer

The firm cannot exceed its internal rate of growth because it wants no additional external financing, meaning it can only grow at a rate that its internal resources (retained earnings) can support.

A Firm's Net Working Capital and All of Its Expenses