Which of the following statements is CORRECT?
A. When we use the AFN equation, we assume that the ratios of assets and liabilities to sales (A0*/S0 and L0*/S0) vary from year to year in a stable, predictable manner.
B. When fixed assets are added in large, discrete units as a company grows, the assumption of constant ratios is more appropriate than if assets are relatively small and can be added in small increments as sales grow.
C. Firms whose fixed assets are "lumpy" frequently have excess capacity, and this should be accounted for in the financial forecasting process.
D. For a firm that uses lumpy assets, it is impossible to have small increases in sales without expanding fixed assets.
E. Regression techniques cannot be used in situations where excess capacity or economies of scale exist.
Answer: C
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