The AFN equation assumes that the ratios of assets and liabilities to sales remain constant over time.However, this assumption can be relaxed when we use the forecasted financial statement method.Three conditions where constant ratios cannot be assumed are economies of scale, lumpy assets, and excess capacity.

Question

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The statement accurately describes the conditions where constant ratios cannot be assumed and the need for the forecasted financial statement method.

The AFN Equation Assumes That the Ratios of Assets and Liabilities