Gerentology Associates, a highly profitable company, is considering two growth strategies, one that
will achieve sales growth of 20 in one year, and the other that will achieve 20 growth in sales,
but over a 4-year time frame.
Assuming Gerentology Associates uses the percent of sales method,
which of the following statements is true?
A) Discretionary financing needed could be much greater for the slow growth strategy because
interest charges will accumulate on the company's debt.
B) The asset balances at the end of 4 years for strategy two will be much greater than the asset
balances required at the end of year one for strategy one.
C) Discretionary financing needed will be much greater for the 4-year growth strategy.
D) Discretionary financing needed could be much less for the 4-year growth strategy due to
retained earnings.
Question 2
Because financial markets can be extremely volatile, with bond and stock prices changing
significantly from day to day, a firm's management has much greater control over the firm's
operating leverage than over its financial leverage.
Indicate whether the statement is true or false
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