A Firm Has an Average Investment of $10,000 During the Year

question 34

Multiple Choice

A firm has an average investment of $10,000 during the year. During the same time, the firm generates after-tax income of $2,000.
If the cost of capital is 15 percent, what is the net return on the investment?

• A)5 percent
• B)20 percent
• C)15 percent
• D)10 percent

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Definitions:

Owner's Rights

Legal rights conferred to owners, entitling them to use, enjoy, and dispose of their property as they see fit.

Strict Foreclosure

A legal process by which the secured lender obtains the title to the mortgaged property without the sale thereof, when the borrower fails to meet the obligations.

Deficiency

The difference between the amount owed on a loan and the amount recovered from selling the asset securing the loan if the latter is less.

Mortgagor

A mortgagor is an individual or entity who borrows money to purchase property and pledges that property as security for the loan.