Assuming that we can earn a 10% return on accounts receivable, which of the following actions 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 which are earning a 16% return.
C) A reduction in marketable securities which are earning a return of 14%.
D) An increase in accounts payable that would cost our firm 15%.

Question

Quizplus · Accepted Answer

Since the return on accounts receivable is 10%, financing it with a bank loan costing 8% would result in a net gain of 2%.

Assuming That We Can Earn a 10% Return on Accounts