As a firm's sales grow, its current assets also tend to increase.For instance, as sales increase, the firm's inventories generally increase, and purchases of inventories result in more accounts payable.Thus, spontaneous liabilities that reduce AFN arise from transactions brought on by sales increases.

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This statement is true. As sales increase, the firm's current assets, such as inventories, accounts receivable, and cash, also tend to increase. The firm may also have to increase its spontaneous liabilities, such as accounts payable and accruals, to fund these additional assets. This results in a reduction in additional funds needed (AFN) that the firm must raise externally to finance its growth.

As a Firm's Sales Grow, Its Current Assets Also Tend