Question

38. Your sister is thinking about starting a new business. The company would require $425,000 of assets, and it would be financed entirely with common stock. She 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 an ROE of 13.5%. How much net income must be expected to warrant starting the business? a. $49,916 b. $63,686 c. $66.555 d. $57,375
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Answer #1

ROE=Net income/Total equity

Hence net income would be equal to=($425000*0.135)(Since total assets ar entirely financed with common stock)

=$57375(D).

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