An Investor Is Considering Starting a New Business

question 41

Multiple Choice

An investor is considering starting a new business.The company would require $475,000 of assets, and it would be financed entirely with common stock.The investor will go forward only if she thinks the firm can provide a 13.5% return on the invested capital, which means that the firm must have an ROE of 13.5%.How much net income must be expected to warrant starting the business?

• A) $52,230
• B) $54,979
• C) $57,873
• D) $60,919
• E) $64,125

---

Definitions:

Conspicuous Waste

The disposal of valuable goods to demonstrate wealth.

Conspicuous Consumption

The purchase of expensive goods simply because they are valuable, not because there is any innate satisfaction in them.

Bureaucracy

A rational organization designed to complete many routine tasks as efficiently as possible.

Power

The ability to make others do something they would not otherwise do.