An Investor Is Considering Starting a New Business

question 41

Multiple Choice

An investor is considering starting a new business.The company would require $475,000 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 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) $52,230
• B) $54,979
• C) $57,873
• D) $60,919
• E) $64,125

---

Definitions:

Industry Characteristics

These are the unique traits and trends that define the operations, competitive environment, and market behavior of a specific industry.

WACC

Calculating the Weighted Average Cost of Capital involves evaluating a company's cost of different types of capital and weighting each category based on its contribution to the total capital.

Debt Ratio

The proportion of a company's total debt to its total assets, indicating how much of the company's operations are financed by debt.

Equity Financing

A method of raising capital through the sale of shares in a company, providing investors ownership interests.