Jacob Cornwall has a business in which he’s invested $250,000 of his own money. Jacob Cornwall has a business in which he’s invested $250,000 of his own money, which is the firm’s only capital. (There are no other equity investors and no debt.) In a recent year the firm had net income of $20,000 for a return on equity of 8% ($20,000/$250,000). What will the firm’s return on equity be next year if net income from business operations remains the same but it borrows $150,000 returning the same amount to Jake from the equity account if The after tax interest rate is 6%. The after tax interest rate is 10%. Comment on the difference between the results of a and b.
Jacob Cornwall has a business in which he’s invested $250,000 of his own money. Jacob Cornwall has a business in which he’s invested $250,000 of his own money, which is the firm’s only capital. (There are no other equity investors and no debt.) In a recent year the firm had net income of $20,000 for a return on equity of 8% ($20,000/$250,000). What will the firm’s return on equity be next year if net income from business operations remains the same but it borrows $150,000 returning the same amount to Jake from the equity account if The after tax interest rate is 6%. The after tax interest rate is 10%. Comment on the difference between the results of a and b.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Jacob Cornwall has a business in which he’s invested $250,000 of his own money. Jacob Cornwall has a business in which he’s invested $250,000 of his own money, which is the firm’s only capital. (There are no other equity investors and no debt.) In a recent year the firm had net income of $20,000 for a
- The after tax interest rate is 6%.
- The after tax interest rate is 10%.
- Comment on the difference between the results of a and b.
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