Which of the following statements is CORRECT?

*The first, and perhaps the most critical, step in forecasting financial requirements is to forecast future sales.

*Forecasted financial statements, as discussed in the text, are used primarily as a part of the managerial compensation program, where management's historical performance is evaluated.

* The capital intensity ratio gives us an idea of the physical condition of the firm's fixed assets.

*The AFN equation produces more accurate forecasts than the forecasted financial statement method, especially if fixed assets are lumpy, economies of scale exist, or if excess capacity exists.

* Perhaps the most important step when developing forecasted financial statements is to determine the breakdown of common equity between common stock and retained earnings.