Although the assumption that operating assets and operating liabilities grow proportionally to sales is a very...

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Although the assumption that operating assets and operatingliabilities grow proportionally to sales is a very goodapproximation for most companies, there are a few circumstancesthat might require more complicated modeling techniques. Wedescribe four possible refinements in section 12-8: economics ofscale, nonlinear relationships, lumpy purchases of assets, andexcess capacity adjustments. However, always keep in mind thatadditional complexity in a model might not be worth the incrementalimprovement in accuracy.
a.which items comprise operating current assets Why is itreasonable to assume that they grow proportionally to sales?
b.What are some reasons that net PP&E might growproportionally to sales, and what are some reasons that it mightnot?
c.What are spontaneous liabilities?

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aOperating assets include both current assets fixed assets that are acquired aid during the conduct of the core operation for which the business was established Here the items of current assets includecash accounts receivablesinventory and all prepaid assets It is only highly reasonable to state that all See Answer

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Although the assumption that operating assets and operatingliabilities grow proportionally to sales is a very goodapproximation for most companies, there are a few circumstancesthat might require more complicated modeling techniques. Wedescribe four possible refinements in section 12-8: economics ofscale, nonlinear relationships, lumpy purchases of assets, andexcess capacity adjustments. However, always keep in mind thatadditional complexity in a model might not be worth the incrementalimprovement in accuracy.a.which items comprise operating current assets Why is itreasonable to assume that they grow proportionally to sales?b.What are some reasons that net PP&E might growproportionally to sales, and what are some reasons that it mightnot?c.What are spontaneous liabilities?