A firm which makes 90 percent of its sales on credit and 10 percent for cash is currently 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.

Question

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A firm growing at 10% annually will likely see an increase in accounts receivable if 90% of sales are on credit, as the cash sales alone are insufficient to cover the growth in credit sales.

A Firm Which Makes 90 Percent of Its Sales on Credit