Appendix 16A Forecasting Financial Requirements
Answers and Solutions
16A–1
Web Appendix 16A
Forecasting Financial Requirements When Financial
Ratios Change
Answers to Questions
16A-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 16A.1.)
16A-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 16A.1.)