AICPA CPA-Business Exam - 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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Denise

7 months ago

Totally agree with B, minimizing debt costs is key!

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Hubert

7 months ago

I think maximizing net worth makes more sense here.

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Annelle

7 months ago

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

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Katlyn

7 months ago

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

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Buddy

8 months ago

Optimum capital structure usually aims to minimize costs.

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Brandon

8 months ago

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

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Tammi

8 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?

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Cecil

8 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.

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Nikita

9 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.

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Carma

9 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.

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Allene

9 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.

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Aleshia

9 months 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.

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