Although the assumption that operating assets and operating liabilities grow proportionally to sales is a very good approximation for most companies, there are a few circumstances that might require more complicated modeling techniques. We describe four possible refinements in section 12-8: economics of scale, nonlinear relationships, lumpy purchases of assets, and excess capacity adjustments. However, always keep in mind that additional complexity in a model might not be worth the incremental improvement in accuracy.

a . which items comprise operating current assets Why is it reasonable to assume that they grow proportionally to sales?

b.What are some reasons that net PP&E might grow proportionally to sales, and what are some reasons that it might not?

c.What are spontaneous liabilities?

Answer rating: 100% (QA)

a Operating current assets typically include cash accounts receivable inventory and other assets tha... View the full answer