Greg Is Interested in Investing in a Small Company, and He

question 69

Multiple Choice

Greg is interested in investing in a small company, and he thinks Good Buy Co. might be a good investment. He has been given the following information and would like to know the return on stockholder's equity. Assume Good Buy's marginal tax rate is 40%. $\begin{array}{ll}\text { Earning before taxes } & \$ 3 \text { million } \\\text { Net profit margin } & 3.6 \% \\\text { Total liabilities } & \$ 15.0 \text { million } \\\text { Total stockhol der's equity } & \$ 10.0 \text { million }\end{array}$

• A) 12%
• B) 20%
• C) 15%
• D) 18%

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Definitions:

Forward Buying

The practice of purchasing stock in larger quantities than immediately needed to take advantage of discounts or to hedge against price increases.

Peak Demand Period

The time frame when the demand for a product or service reaches its highest point.

Pricing Decisions

These are determinations made by businesses about how much to charge for their products or services, influenced by costs, demand, and competitive factors.

Profitability

The ability of a business to earn a profit, which is the surplus remaining from revenue after all costs are deducted.