Albert and Bonnie each own 50% of the stock of Crow, Inc. (a C corporation). To cover what is perceived as temporary working capital needs, each shareholder loans Crow $150,000 with an annual interest rate of 5% (same as the Federal rate) and a maturity date of one year. The loan is made at the beginning of 2011.
Definitions:
Residual Income
The amount of income that an individual or company retains after all operating expenses and charges, including cost of capital, have been deducted.
Minimum Required Rate
The lowest acceptable rate of return on an investment that a manager or investor specifies, considering the project's risk level.
Investment Opportunity
A financial investment or venture with the potential for yielding returns, involving the allocation of resources with the expectation of future financial gains.
Return On Investment
A measurement of the profitability of an investment, calculated by dividing net profit by the initial capital cost.
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