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Luba_88 [7]
3 years ago
5

Charlie is thinking about starting a new business. The company would require $375,000 of assets, and it would be financed entire

ly with common stock. He will go forward only if he thinks the firm can provide a 11.5% return on the invested capital, which means that the firm must have an ROE of 11.5%. How much net income must be expected to warrant starting the business
Business
2 answers:
anyanavicka [17]3 years ago
8 0

Answer:

The income must be $43,125 to warrant starting the business

Explanation:

Given that:

  • ROE of 11.5%
  • The company would require $375,000 of assets, and it would be financed entirely with common stock, it is the equity

The formula of ROE : Net income / Equity

Therefore, Net income = ROE * Equity  

= 11.5% * $375,000

= $43,125

So the income must be $43,125 to warrant starting the business

Hope it will find you well.

erik [133]3 years ago
7 0

Answer:

$43,125.

Explanation:

Since the assets will would be financed entirely with common stock, it implies that assets is equal to common stock as follows:

Assets is equal = Common stock = $375,000

Also,  

Return on equity (ROE) is the ratio of net income to the equity which is also known as common stock. Therefore, ROE can be stated as follows:

ROE = Net income/Equity = 11.5%

Since,

Equity refers to Common stock = $375,000;  

We can calculate the net income using the ROE formula stated above as follows:

Net income/$375,000 = 11.5%

Net income = 11.5% × $375,00 = $43,125

Therefore, the amount of net income must be expected to warrant starting the business is $43,125.

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Answer:

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Explanation:

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Answer:

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The amount of cash received will be for the net amount of receivable after adjusting for sales returns and the sales discount as the payment is received within the discount period of 10 days as stated by the term 2/10 which means a 2% discount if payment is received within 10 days of sale.

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