Final answer:
In summary, in a scenario where a company predicts a sales increase and pays out a portion of net income as a cash dividend, costs and assets may vary with sales while debt and equity do not.
Step-by-step explanation:
The subject of this question is Business. The question is asking about the relationship between costs, assets, debt, and equity when there is a predicted sales increase of 12 percent and the company pays out half of net income as a cash dividend.
In this scenario, costs and assets may vary with sales as the company may need to invest more in production and other resources to meet the increased demand. Debt and equity, on the other hand, do not necessarily vary with sales as they are not directly tied to the company's operational activities.
To further illustrate, let's consider an example. Suppose a company has predicted a sales increase of 12 percent. If the company wants to meet this increased demand, it may need to hire more employees, purchase additional raw materials, or invest in production equipment. These costs would vary with sales. At the same time, the company may need to acquire additional assets such as inventory, buildings, or machinery to support the increased production. These assets would also vary with sales.
However, the company's debt and equity positions do not necessarily change directly with sales. Debt refers to the company's borrowings, such as loans or bonds, which are typically not impacted by changes in sales. Equity, which represents the ownership interest of shareholders, does not directly fluctuate with sales either. While investors may expect a rate of return on their investment, this return can come in the form of dividends or capital gains from buying and selling the company's stock. But the debt and equity positions themselves are not dependent on sales.