A firm is currently operating at full capacity. Net working capital, costs, and all assets vary directly with sales

A firm is currently operating at full capacity. Net working capital, costs, and all assets vary directly with sales. The firm does not wish to obtain any additional equity financing. The dividend payout ratio is constant at 40 percent. If the firm has a positive external financing need, that need will be met by:    A.  accounts payable. B.  long-term debt. C.  fixed assets. D.  retained earnings. E.  common stock.

21.	Which one of the following policies most directly affects the projection of the retained earnings balance to be used on a pro forma statement?    A.  net working capital policy B.  capital structure policy C.  dividend policy D.  capital budgeting policy E.  capacity utilization policy

22.

You are comparing the current income statement of a firm to the pro forma income statement for next year. The pro forma is based on a four percent increase in sales. The firm is currently operating at 85 percent of capacity. Net working capital and all costs vary directly with sales. The tax rate and the dividend payout ratio are fixed. Given this information, which one of the following statements must be true?    A.  The projected net income is equal to the current year's net income. B.  The tax rate will increase at the same rate as sales. C.  Retained earnings will increase by four percent over its current level. D.  Total assets will increase by less than four percent. E.  Total liabilities and owners' equity will increase by four percent.