Accounting: What the Numbers Mean
11th Edition
ISBN: 9781259535314
Author: David Marshall, Wayne William McManus, Daniel Viele
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 3, Problem 3.9E
Exercise 3.9
LO 2
Compare investment alternatives You have two investment opportunities. One will have an 8% rate of return on an investment of $10,000; the other will have a 10% rate of return on principal of $14,000. You would like to take advantage of the higher-yielding investment but have only $10,000 available.
Required:
What is the maximum rate of interest that you would pay to borrow the $4,000 needed to take advantage of the higher yield?
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CH 3. #8 a An investment with an internal rate of return of 0.25 has the following cash flows:
Time
Cash flow
0
C0
1
+$8,000
2
+10,000
The value of C0 is___.
b
If the firm financed the investment in (a) with debt costing 0.25, the debt amortization table (using the funds generated by the investment to repay the loan) would be
Exercise 3-11 (Algo) Compare investment alternatives LO 3-2
Your friend has two investment opportunities that she is considering and has asked for your advice regarding how she should
proceed. One will have an 10.0% rate of return on an investment of $540; the other will have a 14.0% rate of return on an investment of
$760. She would like to take advantage of the higher-yielding investment but has only $540 available.
Required:
What is the maximum rate of interest that your friend should be willing to pay to borrow the $220 needed to take advantage of the
higher yield?
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
Maximum rate of interest
%
4
27
Problem 05-15 (algo)
Consider an investment that pays off $800 or $1,400 per $1,000 invested with equal probability. Suppose you have $1,000 but are
willing to borrow to increase your expected return. What would happen to the expected value and standard deviation of the
investment if you borrowed an additional $1,000 and invested a total of $2,000? What if you borrowed $2,000 to invest a total of
$3,000?
Instructions: Fill in the table below to answer the questions above. Enter your responses as whole numbers and enter percentage
values as percentages not decimals (i.e., 20% not 0.20). Enter a negative sign (-) to indicate a negative number if necessary.
Expected Value Percent Increase Standard Deviation
$ 1100
Invest $1,000
Invest $2,000 $ 2200 X
3300
$
Invest $3,000
X
10
20
30
300
600
900
Expected Return
N/A
Doubled
Tripled
Chapter 3 Solutions
Accounting: What the Numbers Mean
Ch. 3 - Prob. 3.1MECh. 3 - Mini-Exercise 3.2 LO 3 ROI analysis using the...Ch. 3 - Mini-Exercise 3.3 LO 4 Calculate ROE Firm L had...Ch. 3 - Prob. 3.4MECh. 3 - Mini-Exercise 3.5 LO 6 Calculate current...Ch. 3 - Mini-Exercise 3.6 LO 6 Calculate working capital...Ch. 3 - Exercise 3.7 LO 2 Compare investment alternatives...Ch. 3 - Prob. 3.8ECh. 3 - Exercise 3.9 LO 2 Compare investment alternatives...Ch. 3 - Exercise 3.10 LO 2 Compare investment alternatives...
Ch. 3 - Exercise 3.11 LO 3 ROI analysis using the DuPont...Ch. 3 - Prob. 3.12ECh. 3 - Prob. 3.13ECh. 3 - Prob. 3.14ECh. 3 - Exercise 3.15 LO 6 Effect of transactions on...Ch. 3 - Exercise 3.16 LO 6 Effect of transactions on...Ch. 3 - Calculate profitability measures using annual...Ch. 3 - Prob. 3.18PCh. 3 - Problem 3.19 LO 6 Calculate and analyze liquidity...Ch. 3 - Problem 3.20 LO 6 Calculate and analyze liquidity...Ch. 3 - Problem 3.21 LO 3 Applications of ROI using the...Ch. 3 - Prob. 3.22PCh. 3 - Case 3.23 LO 3. 4, 6, 2 Focus company-analysis of...Ch. 3 - Case 3.24 LO 3, 4, 6, 7 Analysis of liquidity' and...
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