Assuming That We Can Earn a 13

question 63

Multiple Choice

Assuming that we can earn a 13.5% return on accounts receivable,which of the following actions to finance an increase in our accounts receivable balance would be optimal?

• A) A reduction in marketable securities which are earning a return of 14.2%
• B) A decrease in inventories which are earning a 17.6% return
• C) An increase in bank loans that would cost us 11.5%
• D) An increase in accounts payable that would cost our firm 15%

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Definitions:

Capital

Financial assets or the financial value of assets, such as cash, that can be used by a company to fund its operations and investments.

New Bonds

New bonds refer to debt securities that have been recently issued by a corporate or governmental entity to raise capital for various purposes.

Par Value

Par value refers to the nominal or face value of a bond, stock, or other financial instrument, indicating the amount that must be repaid at maturity.

Interest Rates

The cost of borrowing money or the return on invested capital, typically expressed as a percentage of the principal amount annually.