Early in a period in which sales were increasing at a modest rate and plan expansion and start-up costs were occurring at a rapid rate,a successful business would likely experience
A) Increased profits and no change in financing requirements.
B) Decreased profits and increased financing requirements because of an increasing cash shortage.
C) Decreased profits and decreased financing requirements because of an increasing cash surplus.
D) Increased profits and increased financing requirements because of an increasing cash shortage.

Question

Quizplus · Accepted Answer

When sales are increasing at a modest rate but there are rapid expansion and start-up costs, the business is likely to experience decreased profits due to the cash shortage. The increase in costs may not be matched by an increase in revenue, leading to a negative impact on the cash flow. As a result, the business may require additional financing to cover the shortfall.

Early in a Period in Which Sales Were Increasing at a Modest