A rapid rate of growth in sales and profits may require:
a. higher dividend payments to shareholders.
b. increased borrowing by the firm to support the sales increase.
c. the firm to be more lenient with credit customers.
d. sales forecasts to be made less frequently.
Which do you think is the correct answer?
I think (a) is the answer
To determine the correct answer, let's analyze each option:
a. Higher dividend payments to shareholders: This option suggests that a rapid rate of growth in sales and profits may require the company to increase dividend payments to shareholders. However, this does not directly address the need for growth. Dividends are usually paid out of profits, so it doesn't necessarily contribute to the growth of sales or profits.
b. Increased borrowing by the firm to support the sales increase: This option suggests that the company may need to borrow more funds to support the increased sales. This can be a viable option as it allows the company to finance its growth through additional capital.
c. The firm to be more lenient with credit customers: This option suggests that the company may need to be more flexible with its credit policies, allowing customers to have more time to pay their debts. While this may help increase sales in the short term, it can also increase the risk of bad debts, which may adversely affect profitability.
d. Sales forecasts to be made less frequently: This option suggests that the company may need to reduce the frequency of sales forecasts. However, regular and accurate sales forecasts are crucial for planning and managing growth effectively. Reducing the frequency of forecasts may hinder the company's ability to predict and respond to changes in the market.
Therefore, based on the analysis, option b seems to be the most suitable answer. Increased borrowing allows the company to access additional capital, which can support the growth in sales and profits.