Question $25$

Popcorn Industries is preparing pro forma financial statements for the upcoming

year. Their executive team is tasked with determining how much in additional assets

they will need to acquire to support their projected sales growth. They further

determined that fixed assets are currently operating below full capacity, so they

decided to increase capacity usage to full capacity to partially offset their need for

fixed assets. Which of the following must be true?

The increase in capacity will decrease the firm's need for additional assets and,

thus, reduce its need for external financing. The shift to full capacity will also

decrease the capital intensity ratio, which suggests that the firm is producing

more sales per dollar of assets.

The increase in capatity will reduce the firm's need for additional assets and, thus,

reduce its need for external financing. The shift to full capacity will also increase

the capital intensity ratio, which suggests that the firm is producing more sales

per dollar of liabilities

The increase in capacity will increase the firm's need for additional assets and,

thus, reduce its need for external financing. The shift to full capacity will also

increase the capital intensity ratio, which suggests that the firm is producing more

sales per dollar of liabilities.

The increase in capacity will decrease the firm's need for additional assets and,

thus, reduce its need for external financing. The shift to full capacity will also

decrease the capital intensity ratio, which suggests that the firm is producing less

sales per dollar of assets.