Rate of return Douglas Keel, a financial analyst for Orange Industries, wishes to estimate the rate of return for two similar-risk investments, X and Y. Douglas’s research indicates that the immediate past returns will serve as reasonable estimates of future returns. A year earlier, investment X had a market value of $20,000, and investment Y had a market value of $55,000. During the year, investment X gener-ated cash flow of $1,500, and investment Y generated cash flow of $6,800. The cur-rent market values of investments X and Y are $21,000 and $55,000, respectively. a. Calculate the expected rate of return on investments X and Y using the most recent year’s data.b. Assuming the two investments are equally risky, which one should Douglas rec-ommend? Why

Rate of return Douglas Keel, a financial analyst for Orange Industries, wishes to estimate the rate of return for two similar-risk investments, X and Y. Douglas’s research indicates that the immediate past returns will serve as reasonable estimates of future returns. A year earlier, investment X had a market value of $20,000, and investment Y had a market value of $55,000. During the year, investment X gener-ated cash flow of $1,500, and investment Y generated cash flow of $6,800. The cur-rent market values of investments X and Y are $21,000 and $55,000, respectively. a. Calculate the expected rate of return on investments X and Y using the most recent year’s data.b. Assuming the two investments are equally risky, which one should Douglas rec-ommend? Why

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 8TP: Fenton, Inc., has established a new strategic plan that calls for new capital investment. The...

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