A firm that makes 90% of its sales on credit and 10% for cash is currently growing at a stable,steady rate of 10% annually.This firm's accounts receivable can be kept at their current level,since the 10% cash sales can be used to support the 10% growth rate.

Question

Quizplus · Accepted Answer

The firm's growth in sales includes both credit and cash sales, meaning that as sales grow, the amount of credit extended to customers (accounts receivable) will also need to increase to support the 90% of sales made on credit, regardless of the cash sales portion.

A Firm That Makes 90% of Its Sales on Credit