Buster Evans Is Considering Investing $20,000 in a Project with the Following

question 17

Multiple Choice

Buster Evans is considering investing $20,000 in a project with the following annual cash revenues and expenses: Depreciation will be $4,000 per year.
What is the accounting rate of return on the investment?

• A) 15%
• B) 35%
• C) 70%
• D) 75%
• E) None of these.

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Definitions:

Weighted Average Cost of Capital

A calculation that reflects the cost of a company's capital, including equity and debt, weighted by their proportion in the total capital structure.

Bond Issue

The process by which a company, government, or other organization raises funds by issuing bonds to investors, who essentially lend money to the issuer in exchange for periodic interest payments and the return of principal at maturity.

Weight of Debt

A component of a firm's capital structure that quantifies the proportion of total capital represented by debt.

Weighted Average Cost of Capital

A calculation of a company's cost of capital in which each category of capital is proportionately weighted, used to evaluate the cost of funding projects.