A firm projects a small increase in sales, but still requires a significant increase in plant and equipment. Which of the following is a reason for such a large financial commitment?
A) Decrease in economies of scale
B) Increase in fixed operating costs
C) Decrease in financing feedbacks
D) Increase in lumpy assets
E) Decrease in spontaneously generated funds

Question

Quizplus · Accepted Answer

An increase in lumpy assets refers to the need for a significant investment in plant and equipment, even though the projected increase in sales is small. This suggests that the company may be undergoing a major expansion or diversification, or that their current assets are outdated and need to be replaced. The other options do not directly relate to the need for a significant financial commitment in plant and equipment.

A Firm Projects a Small Increase in Sales, but Still