JR Textiles,a highly profitable company,is considering two growth strategies,one that will achieve sales growth of 20% in one year,and the other that will achieve 20% growth in sales,but over a 4-year time frame.Assuming JR Textiles uses the percent of sales method,which of the following statements is true?

Question

Quizplus · Accepted Answer

The percent of sales method assumes that the company will finance its growth through a combination of retained earnings and additional financing. As the 4-year growth strategy allows for a longer time frame, the company can utilize its retained earnings to finance a portion of the growth, reducing the amount of discretionary financing needed compared to the one-year growth strategy. Therefore, option B that discretionary financing needed could be much less for the 4-year growth strategy due to retained earnings is the correct choice. Option A is incorrect as there is no information to suggest that discretionary financing needed will be much greater for the 4-year growth strategy. Option C is incorrect because the asset balances required for the 4-year growth strategy will be spread out over four years and will not necessarily be much greater than the asset balances required for the one-year growth strategy. Option D is incorrect because the slow growth strategy is the 4-year growth strategy, and there is no information to suggest that the company will incur more interest charges with this strategy.

JR Textiles,a Highly Profitable Company,is Considering Two Growth Strategies,one That