Cash should have a higher required return than accounts receivable because it is more liquid. True...

Cash should have a higher required return than accounts receivable because it is more liquid. True or False.

Expert Solution

The answer is False.

Liquid Assets - Those assets which can be converted into cash easily without affecting the assets price. Example -Cash, Accounts Receivable,Accrued income, Bills receivable etc.

An asset with higher liquidity will have lower required return. An investor would require higher returns on asset which has lower liquidity. As cash is an liquid asset, investors would require lower return.

Same is in the case for Investments as investments with higher liquidity have lower returns because the investors get the option to convert their investments into cash within a short period of time.

Accounts receivable is not as liquid as Cash because it represents goods sold to customers on credit. Since customers enjoy the credit period accounts receivable takes time to convert in cash.

Thus it can be concluded that Cash will not have higher required return than accounts receivable.

Therefore the statement given in the question is False.

ekkarill92 answered 1 year ago

Why might an organization maintain more than necessary amounts of cash, accounts receivable, and inventory? Why...

Why might an organization maintain more than necessary amounts of cash, accounts receivable, and inventory? Why might another organization maintain the minimum amount of cash, accounts receivable, and inventory? What would be the difference in risk and return for these companies?

The market value: Multiple Choice of accounts receivable is generally higher than the book value of...

The market value: Multiple Choice of accounts receivable is generally higher than the book value of those receivables. of an asset tends to provide a better guide to the actual worth of that asset than does the book value. of fixed assets will always exceed the book value of those assets. of an asset is reflected in the balance sheet. of an asset is lowered each year by the amount of depreciation expensed for that asset.

What is accounts receivable? What is notes receivable and how are they different than accounts receivable?...

What is accounts receivable? What is notes receivable and how are they different than accounts receivable? How do creditors decide to extend credit to their customers? What processes do credit managers use to evaluate new customers? Now explain the allowance for doubtful accounts and provide examples.

a) Should small or high-growth firms have higher betas than larger and more mature firms? Discuss....

a) Should small or high-growth firms have higher betas than larger and more mature firms? Discuss. Due to the distinctive nature of unsystematic risk, it can be reduced or eliminated through diversification. Do you agree with this statement? Explain.

Why does a gas have more potential energy than a liquid?

If you buy a bond for more than par value it is either because you required...

If you buy a bond for more than par value it is either because you required rate of return, or market rates for like bonds, have: declined since the bonds original issue no real impact on your decision increased since the bonds original issue stabilized due to growth in the economy lots of shiny jewelry that sweetens the deal

1) True or False: a) CH3Br is a more reactive electrophile than CH3Cl because Br is...

1) True or False: a) CH3Br is a more reactive electrophile than CH3Cl because Br is more electronegative than Cl b) Iodide anion is a more reactive nucleophile than bromide anion. c) Dehydrohalogenation of alkyl halides forms the trans-isomer as the major alkene product. d)The (E)- and (Z)- alkene isomers are a pair of diastereomers. e) The reaction between a secondary alkyl bromide and a sodium alkoxide salt (NaOR) gives a major product from nucleophilic substitution.

Why would a cash company have an accounts receivable on their financial statement?

Suppose a liquid asset and an illiquid asset have the same true return in every period....

Suppose a liquid asset and an illiquid asset have the same true return in every period. (The true returns, though, do vary from period to period.) Suppose, however, that the true return on the illiquid asset is always reported one period late. What effect will that have on the correlation of returns between the two assets. ENHANCE the correlation. LEAVE UNCHANGED the correlation. REDUCE the correlation. ENHANCE or LEAVE UNCHANGED the correlation. REDUCE or LEAVE UNCHANGED the correlation.

True or false? Not all excess cash should be invested in higher earning assets; although this...

True or false? Not all excess cash should be invested in higher earning assets; although this reduces return on the cash, it also reduces costs that arise from not having cash on hand (such as late fees). Explain your answer.

Question