Required rate of return and cost of finance

Good day.

Can you please explain why in this example required rate on investments is the same as cost of additional finance (20%)? The lines which i ask about are indicated by arrow (—->)

Grabbit Quick Co achieves current annual sales of $1,800,000. The cost of sales is 80% of this amount,
but bad debts average 1% of total sales, and the annual profit is as follows.
$
Sales 1,800,000
Less cost of sales 1,440,000
360,000
Less bad debts 18,000
Profit 342,000
The current debt collection period is one month, and the management consider that, if credit terms were
eased (Option A), the effects would be as follows.
Present policy Option A
Additional sales (%) – 25%
Average collection period 1 month 2 months
Bad debts (% of sales) 1% 3%

—->The company requires a 20% return on its investments.

The costs of sales are 75% variable and 25%
fixed. Assume there would be no increase in fixed costs from the extra revenue and that there would be no
increase in average inventories or accounts payable. Which is the preferable policy, Option A or the
present one?
Solution
The increase in profit before the cost of additional finance for Option A can be found as follows.
(a) $
Increase in contribution from additional sales
25% ? $1,800,000 ? 40%* 180,000
Less increase in bad debts (3% ? $2,250,000) – $18,000 49,500
Increase in annual profit 130,500
* The contribution/sales ratio is 100% – (75% ? 80%) = 40%
(b) $
Proposed investment in accounts receivable $2,250,000 ? 1/6 375,000
Less current investment in accounts receivable $1,800,000 ? 1/12 150,000
Additional investment required 225,000

—-> Cost of additional finance at 20% $45,000

(c) As the increase in profit exceeds the cost of additional finance, Option A should be adopted.