Which of the following statements is correct if a firm's pro forma financial statements project net income of $12,000 and external financing required of $5,000?
A) Total assets cannot grow by more than $10,000.
B) Dividends cannot exceed $10,000.
C) Retained earnings cannot grow by more than $12,000.
D) Long-term debt cannot grow by more than $5,000.

Question

Quizplus · Accepted Answer

Retained earnings are directly affected by the amount of net income a firm generates, as they represent the portion of net income that is not distributed to shareholders as dividends. If the firm projects a net income of $12,000, the maximum increase in retained earnings would be $12,000, assuming all net income is retained and none is distributed as dividends.

Which of the Following Statements Is Correct If a Firm's