Assuming that we can earn a 10% return on accounts receivable, which of the following strategies to finance an increase in our accounts receivable balance would be optimal?
A) An increase in bank loans that would cost us 8%
B) A decrease in inventories that are earning a 16% return
C) A reduction in marketable securities that are earning a return of 14%
D) An increase in accounts payable that would cost our firm 15%

Question

Quizplus · Accepted Answer

Financing the increase in accounts receivable with a bank loan costing 8% is optimal because it is the lowest cost option compared to the returns of the other choices, and it allows earning a higher return of 10% on the accounts receivable.

Assuming That We Can Earn a 10% Return on Accounts