Which of the following statements is most correct?
A) The AFN formula method assumes that the balance sheet ratios of assets and liabilities to sales (A*/S0 and L*/S0) remain constant over time, while the percentage of sales method does not.
B) When assets are added in large, discrete units as a company grows, then the assumption of constant ratios and steady growth rates is most appropriate.
C) Temporary excess capacity can be characteristic of a firm that adds lumpy assets as it grows or one that experiences cyclical changes.
D) For a firm that has lumpy assets, small increases in sales can be accommodated without expanding fixed assets, even when the firm is at capacity.
E) The graphical relationship between assets and sales where economies of scale are present is always linear.

Question

Quizplus · Accepted Answer

Temporary excess capacity can occur when a firm adds large, indivisible assets (lumpy assets) or experiences cyclical changes, leading to periods where not all capacity is utilized.

Which of the Following Statements Is Most Correct