Unformatted text preview: Explain how each of the following factors would affect the accuracy of financial forecasts based on the AFN equation: (1) economies of scale in the use of assets, and (2) lumpy assets. Answer: 1. Economies of scale in the use of assets mean that the asset item in question must increase less than proportionately with sales; hence it will grow less rapidly than sales. Cash and inventory are common examples, with possible relationship to sales as shown below: Inventories Sales Base Stock Cash Sales...
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- Spring '08
- Balance Sheet, AFN, $500, $125, $184.5