Oxnard Rims, Inc., has $5 million in assets and $2 million in debt. During the course of the year, it takes in $1 million in net revenue after deduction of all costs (except for interest) and incurs interest expenses of $500,000. Oxnard Rims, Inc., pays an average tax rate of 35% on its profit. Calculate the percentage return on equity after taxes for the corporation. If the market interest rate is 12.5%, do you think Oxnard Rims pleased its investor for the preceding year?
What will be an ideal response?
(A) Oxnard has equity of $3 million (5M - 2M). After deduction of interest paid, net profit is
$500,000 and the tax liability is $175,000. The net profit after taxes is $325,000. This is 10.8 %
of equity.
(B) No, because ROE is less than the market rate.
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Refer to Figure 15-1. In the figure, the money demand curve would move from Money demand1 to Money demand2 if
A) the price level decreased. B) the interest rate increased. C) the Federal Reserve sold Treasury securities. D) real GDP increased.
Money supply would expand if people chose to hold borrowed funds in cash rather than in checking accounts
a. True b. False Indicate whether the statement is true or false
Answer the following statements true (T) or false (F)
1. Prior to 2006, the most severe trough in a U.S. business cycle since the Great Depression occurred in 1981–1982. 2. Psychological forces usually tend to moderate cyclical movements of the economy. 3. A recession is defined as a period in which real GDP is negative for two consecutive quarters. 4. Interest rates usually rise during the contraction phase of the business cycle. 5. The level of business activity at any time is affected by the trend, seasonal variations, random fluctuations, and cyclical fluctuations.
An example of a good that can be used for money that has intrinsic value is:
A. cigarettes. B. fish. C. gold. D. All of these have intrinsic value.