Assuming That We Can Earn a 10% Return on Accounts

question 28

Multiple Choice

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%

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Definitions:

Positively Correlated

A relationship between two variables where if one variable increases, the other one also increases.

Positively Correlated

Refers to a relationship between two variables where they move in the same direction, meaning as one variable increases, the other variable also increases.

Outdoor Temperature

The temperature of the air outside, which can vary widely depending on geographic location, time of day, and season.

Hot Chocolate Sales

The commercial activity of selling hot chocolate, often used as an example in economic studies of seasonal demand.