Assuming That We Can Earn a 13

question 91

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 that are earning a return of 12.2%
• B) a decrease in inventories that are earning a 17.6% return
• C) an increase in bank loans that would cost us 14.5%
• D) an increase in accounts payable that would cost our firm 15%

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Definitions:

Apparent Authority

The appearance or assumption of authority based on the actions of the principal, leading others to believe that an agent has the power to act on behalf of the principal.

Actual Authority

The express and implied powers granted to an agent by the principal.

Partially Disclosed Principal

A principal whose identity is not known by a third party, although the third party is aware that the agent is making an agreement on behalf of a principal. Also called unidentified principal.

Apparent Authority

A form of authority that a third party perceives to exist based on the principal’s behavior, even if no actual authority has been granted by the principal to the agent.