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1) An investor is considering starting a new business. The company would require $550,000 of assets, and it would be financed entirely with common stock. The investor will go forward only if she thinks the firm can provide a 21.5% return on the invested capital, which means that the firm must have an ROE of 21.5%. How much net income must be expected to warrant starting the business?

2) ABC Corp. sells on terms which permit customers 45 days to pay for merchandise. Its sales last year were= $475,000, and its year-end receivables were= $80,000. If its DSO is less than 45-day credit period, then customers are paying on time. If not, they are paying late. By how much are customers paying early or late? Base your answer on this equation: DSO - Credit period = days early or late, and use a 365-day year when computing DSO. Positive answer points out late payments, whereas a negative answer points out early payments.

Basic Finance, Finance

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