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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 earnings if the owners invest (use their own money) for the $800 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 owners' investment in each case? Why do the returns differ?

d. If 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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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M9792571

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