A fast-growing manufacturing company is unable to keep pace with sales. Future sales forecasts suggest that this high demand for the company’s products will continue. Why might the company need to raise new capital?

While managing long-term debt is important for financial health, raising new capital for this purpose does not directly address the immediate need to increase production capacity. Reducing debt may improve financial ratios but does not solve the pressing issue of meeting growing sales demands.

Increasing inventory levels can be beneficial for managing seasonal demand, but it does not solve the core issue of production capacity. The company may still struggle to meet sales forecasts if its manufacturing capabilities are not enhanced, making this choice less relevant in the context of significant growth.

Distributing additional dividends could be seen as a reward to shareholders, but it does not contribute towards expanding the company's production capabilities. In a scenario where rapid growth is anticipated, prioritizing reinvestment into the company rather than distributing profits is crucial for sustaining growth.