Complete the Following Chart to Illustrate How Leverage Can Increase

question 85

Essay

Complete the following chart to illustrate how leverage can increase investors' returns while concurrently exposing them to large losses.
Facts: Calabria Corporation is a new company and has only one asset,its cash of $105,000 from the sale of common shares.
In scenario 1,Calabria invests the $105,000 in a venture that will pay out either $85,000 or $135,000 at the end of one year,depending on the success of the venture.
In scenario 2,Calabria borrows $210,000 at 7% interest and invests $315,000 in the same project outlined in Scenario 1.The payout will be $255,000 ($85,000 × 3)or $405,000 ($135,000 × 3)because it invests three times as much.

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Definitions:

Needs

Basic requirements for human survival and psychological well-being, such as food, water, and belonging.

Preference

A predilection or inclination for something over others, often reflecting values, desires, or needs.

Motivation Index

A measure or indicator of an individual's level of motivation.

Activation

The act of making something active or operative, especially within biological or technical systems.