18.4

a. This question is answered by the planning model. Given assumptions for asset growth, the model will show the need for external financing, and this value can be compared to the firm's plans for such financing.

b. Such a relationship may be assumed and built into the model. However, the model does not help to determine whether it is a reasonable assumption.

c. Financial models do not shed light on the best capital structure. They can tell us only whether contemplated financing decisions are consistent with asset growth.