An inferior good is one for which an increase <span> in buyers income causes</span> a decrease in demand.
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Photon
Answer:
It is $9,450 (A)
Explanation:
Return on Investment = 40% * $ 45,000
=$18,000
Minimum Required Return = 19% *$ 45,000
= $8,550
Hence, Residual Income = $18,000-$8,550
=$9,450
Minimum required return represents the amount of returns that must be generated on investment to satisfy the expectations of providers of funds.
Residual income is what is left after dividends and interest have been paid to the various investors which can be retained for future investment.
Answer:
ROE would have changed by 8.52%
Explanation:
First we calculate the current ROE using Dupont Equation which gives ROE as,
ROE = Net Income/Sales * Sales/Total Assets * Total Assets/Equity
or
ROE = Net Profit Margin * Total Assets Turnover * Equity Multiplier
- Current ROE = 10600/295000 * 1.4 * 1.75 = 0.0880 or 8.8%
The condition says that the net income could have increased to 20850 but other factors will remain constant. Thus, to calculate new ROE, we will calculate the new Net Profit margin but the total assets turnover and the equity multiplier will remain constant as sales assets and capital structure is not changing.
- New ROE = 20850/295000 * 1.4 * 1.75 = 0.17316 or 17.32%
- The ROE would have changed by 17.32 - 8.80 = 8.52%
