Discuss AICPA CPA-Business Exam Topic 1 Question 108

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.

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.

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25 comments · newest first

Denise 10 months ago

Totally agree with B, minimizing debt costs is key!

Hubert 10 months ago

I think maximizing net worth makes more sense here.

Annelle 10 months ago

A is about maximizing earnings per share, not capital structure.

Katlyn 10 months ago

Wait, can they really achieve an optimum capital structure? Sounds tricky.

Buddy 11 months ago

Optimum capital structure usually aims to minimize costs.

Brandon 11 months ago

I feel like maximizing earnings per share is more about profitability than capital structure, but I can't quite recall the details.

Tammi 11 months ago

I practiced a similar question where minimizing costs was emphasized, so maybe minimizing the cost of debt could be the right choice here?

Cecil 11 months ago

I think maximizing net worth makes sense since it reflects the overall value of the firm, but I could be mixing it up with maximizing shareholder value.

Nikita 12 months ago

I remember studying that an optimum capital structure aims to balance risk and return, but I'm not sure which objective aligns best with that.

Carma 12 months ago

I'm leaning towards C, maximize the net worth of the firm. Optimizing the capital structure should ultimately increase the firm's value and net worth, right? But I'm not 100% confident on this.

Allene 12 months ago

Okay, let me think this through. If the firm is trying to optimize its capital structure, that likely means they want to minimize their overall cost of capital. So the answer that seems most aligned with that would be B, minimize the cost of debt.

Aleshia 1 year ago

Hmm, I'm a bit unsure about this one. The options seem to be related to different financial objectives, but I'm not sure which one is most consistent with the announcement about achieving an optimum capital structure.

Mary 1 year ago

This question seems straightforward. I think the key is to focus on the concept of capital structure optimization, which is mentioned in the prompt.

Laila 1 year ago

Optimum capital structure, huh? I'm just hoping my capital structure is structured enough to pass this exam!

Luisa 1 year ago

↳ replying to Laila

D) Minimize the cost of equity.

Luther 1 year ago

↳ replying to Laila

C) Maximize the net worth of the firm.

Arlette 1 year ago

↳ replying to Laila

B) Minimize the cost of debt.

Fannie 1 year ago

↳ replying to Laila

A) Maximize earnings per share.

Maybelle 2 years ago

Liam

Santos 1 year ago

↳ replying to Maybelle

C) Maximize the net worth of the firm.

Blondell 1 year ago

↳ replying to Maybelle

B) Minimize the cost of debt.

Lindsey 1 year ago

↳ replying to Maybelle

A) Maximize earnings per share.

Laquita 2 years ago

I think the answer is B) Minimize the cost of debt because it will help in achieving the optimum capital structure.

Benedict 2 years ago

I disagree, I believe the answer is C) Maximize the net worth of the firm.

Karima 2 years ago

I think the answer is A) Maximize earnings per share.

AICPA CPA-Business Exam - Topic 1 Question 108 Discussion