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Unformatted text preview: Web Appendix 17A Forecasting Financial Requirements When Financial Ratios Change Answers to Questions 17A-1 If economies of scale exist, increases in sales require proportionally lesser increases in assets. With economies of scale, ratios are likely to change over time (and to decrease) as the size of the firm increases. (Refer to panel b of Figure 17A-1.) 17A-2 If a firm’s business model consists of relatively few fixed asset investments, then the firm is more likely to encounter a lumpy assets problem. In many industries, technological considerations dictate that if a firm is to be competitive, it must add fixed assets in large, discrete units. (Refer to panel d of Figure 17A-1.) 17A-3 Because a firm is operating at capacity, even a small increase in sales would require an increase in plant capacity (a large discrete unit), so a small projected sales increase would bring with it a very...
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This note was uploaded on 01/11/2012 for the course FIN 3403 taught by Professor Tapley during the Fall '06 term at University of Florida.
- Fall '06