Taylor Has the Following Assets and Liabilities Suppose That Taylor Receives a $10,000 Bonus from Her Employer

question 101

Multiple Choice

Taylor has the following assets and liabilities: $$\begin{array} { l l r } \text { Two cars } & \$ 15,000 \\\text { House } & \$ 400,000 \\\text { Mortgage } & \$ 300,000 \\\text { Cash } & \$ 1,000 \\\text { Car loans } & \$ 5,000 \\\text { Checking account balance } & \$ 3,000 \\\text { Credit card balance } & \$ 3,000\end{array}$$
Suppose that Taylor receives a $10,000 bonus from her employer.If she puts that money toward her mortgage,her wealth would ______;if she puts that money in her checking account,her wealth would ______.

• A)increase to $121,000;decrease to $101,000
• B)increase to $115,000;decrease to $95,000
• C)increase to $121,000;increase to $121,000
• D)increase to $115,000;increase to $115,000

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Definitions:

Annual Net Income

The total profit of a company after all expenses and taxes have been deducted from revenues over a year.

Payback Period

The amount of time it takes for an investment to generate enough cash flow to recover its initial cost.

Accounting Rate of Return

A method used to determine the profitability of an investment, calculated by dividing the average annual accounting profit by the initial investment cost.

Straight-Line Depreciation

A methodology for dispensing the cost of a durable asset over its useful period in uniform annual allocations.