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Investment Calculations and Return on Equity

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Return on Equity

A firm needs $800 to start and has the following expectations:

Sales $1,600
Expenses $1,450
Tax Rate 33% of earnings

a. What are the earnings if the owners invest (use their own money) for the $900 needed to start?
b. If the firm borrows $400 of the $800 at an interest rate of 10%, what are the firm's net earnings?
c, What is the return on the owner's investment in each case? Why do the returns differ?
d. If the expenses rise to $1,500, what will be the returns in each case?
e. In which case did the returns decline more?
f. What generalization can you draw from the above?

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Return on Equity

A firm needs $800 to start and has the following expectations:

Sales $1,600
Expenses $1,450
Tax Rate 33% of earnings

a. What are the earnings if the owners invest (use their own money) for the $900 needed to start?
b. If the firm borrows $400 of the $800 at an interest rate of 10%, what are the firm's net earnings?
c, What is the return on the owner's investment in each case? Why do the returns ...

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