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You constructed a pro forma balance sheet for next year and found that external financing required was negative (i.e., the company projected a financing surplus). Which of the following options, all else equal, would NOT correct the projected imbalance ? A. An increase in the retention ratio B> 60 percent of March sales.

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Austine561

Answer:

Correct answer A

Explanation:

A retention ratio is the proportion of net income retained to fund the operational needs of a business. When there is a high retention level, it typically means that management believes there are uses for the cash internally that will provide a rate of return higher than the cost of capital. However, if management is retaining funds for which there is not a good use, investors may end up earning a negative return on the funds.

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