An investor is considering starting a new business. The company would require $475,000 of assets, and it would be financed entirely with common stock. The investor will go forward only if she thinks the firm can provide a 13.5% return on the invested capital, which means that the firm must have a ROE of 13.5%. How much net income must be expected to warrant starting the business?
Before you approach this question, the first thing you may want to note is what is 'return on equity' and how it is calculated. Return on equity (ROE) is considered as, the amount of net income returned as a percentage of shareholders equity. It measures a corporation's ...
This solution shows you how to find the net income of a company given that you already know what the return on equity is for that said company.