EvenFlo Pipes forecasts a small increase in sales next year. To achieve this growth in sales, however, the firm must purchase an amount of plant and equipment that is more than double the increase in sales. What is the most likely reason EvenFlo must purchase such a large amount of fixed assets?
A)The increase in sales will provide substantial economies of scale.
B)The increase in sales will result in a significant increase in fixed operating costs.
C)The increase in sales will generate a decrease in financing feedbacks.
D)The firm must purchase lumpy assets to achieve the increase in sales.
E)The increase in sales will produce a decrease in spontaneously generated funds.

Question

Quizplus · Accepted Answer

EvenFlo Pipes needs to purchase a large amount of fixed assets because it must acquire lumpy assets to achieve the increase in sales. Simply put, the sales growth cannot be achieved without a significant investment in plant and equipment.

EvenFlo Pipes Forecasts a Small Increase in Sales Next Year