If your firm is currently operating at full capacity and you expect strong sales growth over the next few years, you should most likely: A) Expect that assets will not grow. B) Raise your dividend payout to accommodate the growth. C) Put off any further financial planning until sales growth moderates. D) Expect external financing will be needed. E) Expect the growth in retained earnings to outpace the growth in sales.

If your firm is currently operating at full capacity and you expect strong sales growth over the next few years, you should most likely:
A) Expect that assets will not grow.
B) Raise your dividend payout to accommodate the growth.
C) Put off any further financial planning until sales growth moderates.
D) Expect external financing will be needed.
E) Expect the growth in retained earnings to outpace the growth in sales.

Answer

• D) Expect external financing will be needed.
  Explanation:
  Why the other options are not true.
  A) Expect that assets will not grow. – No, Strong sales growth will require more assets especially with the fact that the company is operating at full capacity.
  B) Raise your dividend payout to accommodate the growth. – No, Raising dividend payout will reduce amount of money available for investment.
  C) Put off any further financial planning until sales growth moderates. – No, Financing planning will be most needed during such times.
  D) Expect external financing will be needed – This is correct because the firm is already at full capacity, which implies the limit on one or more resources has been reached and the firm will have to incur opportunity costs if resources are no added to the production, which can be sought through external financing
  E) Expect the growth in retained earnings to outpace the growth in sales. – No, With need for more financing and more assets, retained earnings will be less than growth in sales.