AICPA Exam CPA-Business Topic 1 Question 108 Discussion

Actual exam question for AICPA's CPA-Business exam

Question #: 108
Topic #: 1

Osgood Products has announced that it plans to finance future investments so that the firm will achieve an optimum capital structure. Which one of the following corporate objectives is consistent with the announcement?

AMaximize earnings per share.

BMinimize the cost of debt.

CMaximize the net worth of the firm.

DMinimize the cost of equity.

Show Suggested Answer

Suggested Answer: B

Choice 'b' is correct. If a seller extends credit to a purchaser for a period of time longer than the purchaser's operating cycle, the seller is, in effect, financing more than just the purchaser's inventory needs.

Choice 'a' is incorrect. Accounts receivable would be higher than those companies whose credit period is shorter than the purchaser's operating cycle.

Choice 'c' is incorrect. Seller is financing the purchaser, but not necessarily long-term assets.

Choice 'd' is incorrect. It is appropriate for the seller to have stated policies for discount rate and credit periods.

by Franklyn at Mar 07, 2025, 03:42 PM

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