A firm is currently operating at full capacity. Net working capital, costs, and all assets vary directly with sales. The firm does not wish to obtain any additional equity financing. The dividend payout ratio is constant at 40 percent. When the firm compiles a pro forma statement, the plug variable is most likely going to be:

Question

Quizplus · Accepted Answer

Since the firm does not wish to obtain additional equity financing and is operating at full capacity, any additional financing needed to support sales growth will likely come from long-term debt.

A Firm Is Currently Operating at Full Capacity