A Firm Requires an Investment of $20,000 and Will Return

question 100

Multiple Choice

A firm requires an investment of $20,000 and will return $26,500 after one year. If the firm borrows $6000 at 7%, what is the return on levered equity?

• A) 35%
• B) 52%
• C) 43%
• D) 61%

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Definitions:

Forecast Error

Forecast error is the difference between the actual value and the predicted value in a forecast, indicating the accuracy of forecasting models.

IRR

Internal Rate of Return, a financial metric used to evaluate the profitability of potential investments.

Operating Leverage

A measure of how sensitive a company's operating income is to a change in revenue, highlighting the impact of fixed costs on profitability.

Operating Cash Flow

The cash generated from a company's regular business operations, indicating its ability to generate sufficient cash to maintain operations.