Chapter 14, Problem 7BTN

To determine

Particulars	Interest rate 10%	Interest rate 15%	Interest rate 16%	Interest rate 17%	Interest rate 20%
Current annual Income	40,000	40,000	40,000	40,000	40,000
Total income after expansion (40,000+ 16,000)	56,000	56,000	56,000	56,000	56,000
Less: Existing Interest expenses	10,000	10,000	10,000	10,000	10,000
Less: Addition Interest expenses	10,000	15,000	16,000	17,000	20,000
Net Income after all expenses ( Total income- existing and additional Interest expenses)	36,000	31,000	30,000	29,000	26,000
Return on equity (Net income after all expenses/ Total equity)	14.4%	12.4%	12%	11.6%	10.4%
Decision to accept or reject	Accept	Accept	Accept	Reject	Reject

Return on Equity is the amount of net income earned after all expenses as a percentage of shareholders equity. It shows that how much of the income Company has generated on its own funds. Higher the returns, higher will be the profits for the organization.

To determine:

In the given question, Uber is considering to expand the business and want to raise the funds through notes payable. We have to tell whether to accept or reject the decision by taking the Return on equity as criteria at different interest rates.