Question

You just founded a tech startup with an incredible ROI of 100%. That is, each dollar you invest in the firm creates a permanent increase of one dollar in earnings for all time. Unfortunately, like most good things, this ROI will be gone after two years (this means you can invest at ROI=100% at the end of years 1 and 2). After that, the ROI will lze 7%. You plan on reinvesting all earnings as long as its profitable, your return on equity is 10%, and your projected earnings for year 1 will be $10 million. What are the earnings for your startup at the end of year 3?
a. 40 million
b. 30 million
c. 20 million
d. 31 million
e. 19 million

Answer 1

I believe it’s c 20 million