Arvo Corporation Is Trying to Choose Between Three Alternative Investments

question 55

Multiple Choice

Arvo Corporation is trying to choose between three alternative investments. The three securities that the company is considering are as follows: (1) (2) (3) The company's tax rate is 28 percent. What is the after-tax return on the best investment alternative?

• A) 7.00%
• B) 7.20%
• C) 6.48%
• D) 9.00%
• E) 8.24%

---

Definitions:

Accrual Basis Accounting

A financial recording system in which earnings and expenditures are logged when they happen, not necessarily when the payment is made or received.

Return on Assets

A financial ratio that measures how effectively a company is using its assets to generate profit, typically expressed as a percentage.

Debt Ratio

Debt ratio is a financial ratio that measures the extent of a company’s leverage, calculated by dividing total liabilities by total assets.

Profit Margin

A financial ratio that shows the percentage of revenue that exceeds the costs of goods sold, indicating the profitability of a business.