Cross Town Express has sales of $137,000, net income of $14,000, total assets of $98,000, and total equity of $45,000. The firm
paid $7,560 in dividends and maintains a constant dividend payout ratio. Currently, the firm is operating at full capacity. All costs and assets vary directly with sales. The firm does not want to obtain any additional external equity.
At the sustainable rate of growth, how much new total debt must the firm acquire?
A. $0
B. $6311
C. $6989
D. $7207
E. $8852
At the sustainable rate of growth, how much new total debt must the firm acquire?
A. $0
B. $6311
C. $6989
D. $7207
E. $8852
1 answer:
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Answer:
a. increase price in the short run but not in the long run.
Explanation:
A perfectly competitive market is one in which firms in an economy produce similar goods, and use resources that are limited in quantity.
An increase in demand will result in a corresponding increase in price, and results in firms making high profits. In the diagram below it results in a shift of demand from D1 to D2.
In the long run as firms have low barrier to entry more firms enter the market and supply shifts from S1 to S2. There is reduction in prices and profits start to fall. This is illustrated in the second diagram.
