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%

Question

Quizplus · Accepted Answer

An increase in bank loans costing 11.5% is optimal because the cost is lower than the 13.5% return on accounts receivable, resulting in a net gain.

Assuming That We Can Earn a 13