Table 15.2 The company earns 5 percent on current assets and 15 percent on fixed assets. The firm's current liabilities cost 7 percent to maintain and the average annual cost of long-term funds is 20 percent.
-The firm would like to increase its current ratio. This goal would be accomplished most profitably by ________. (See Table 15.2)
A) increasing accounts payable
B) decreasing inventory
C) increasing accounts receivable
D) decreasing cash and cash equivalents

Question

Table 15.2  The company earns 5 percent on current assets and 15 percent on fixed assets. The firm's current liabilities cost 7 percent to maintain and the average annual cost of long-term funds is 20 percent.
-The firm would like to increase its current ratio. This goal would be accomplished most profitably by ________. (See Table 15.2)
A) increasing accounts payable 
B) decreasing inventory 
C) increasing accounts receivable 
D) decreasing cash and cash equivalents

Quizplus · Accepted Answer

Increasing accounts receivable can improve the current ratio by increasing current assets, which directly impacts the ratio positively. The current ratio is calculated as current assets divided by current liabilities, so increasing assets (like accounts receivable) without increasing liabilities improves the ratio.

Table 152 the Company Earns 5 Percent on Current Assets