A New Business Opportunity Has a 70% Chance of Being

question 55

Multiple Choice

A new business opportunity has a 70% chance of being worth $500,000 next year and a 30% chance of being worth $100,000. The appropriate expected rate of return is 10%.
-Refer to the information above. Assume that the new opportunity will be financed with a $150,000 bank loan. What rate of return will the levered equity holder earn if the business
Pays off $500,000 in one year?

• A)57.1%
• B)52.2%
• C)45.7%
• D)13.6%

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Definitions:

Semantic Memory

The memory of meanings, understandings, and other concept-based knowledge unrelated to specific experiences.

Episodic Memory

A kind of enduring memory that pertains to the recall of particular incidents, conditions, and personal encounters.

Procedural Memory

Procedural memory is a type of long-term memory that involves the memory of how to perform different actions and skills.

Procedural Memory

The memory system involved in the unconscious retention and retrieval of learned motor skills and habits.