Which of the Following Statements Is Most Correct

question 45

Multiple Choice

Which of the following statements is most correct?

• A) A firm that makes 90 percent of its sales on credit and 10 percent for cash is growing at a rate of 10 percent annually. If the firm maintains stable growth it will also be able to maintain its accounts receivable at its current level, since the 10 percent cash sales can be used to manage the 10 percent growth rate.
• B) In managing a firm's accounts receivable it is possible to increase credit sales per day yet still keep accounts receivable fairly steady if the firm can shorten the length of its collection period.
• C) If a firm has a large percentage of accounts over 30 days old, it is a sign that the firm's receivables management needs to be reviewed and improved.
• D) Since receivables and payables both result from sales transactions, a firm with a high receivables-to-sales ratio should also have a high payables-to-sales ratio.
• E) None of the statements above is correct.

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Definitions:

Normal Return

The minimum profit necessary to keep a company in business, equating to the opportunity cost of capital.

Own Capital

The funds or assets personally invested by the owners into a business, distinct from borrowed capital.

Economic Profit

The separation between full-scale income and aggregated expenses, acknowledging both straightforward and underlying costs.

Own Capital

The personal wealth or assets invested in a business by its owners.