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
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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QUESTION 7
If you have $100K, and want to invest in assets A, B and C. Asset A has historical AVG return of 15%, asset B 20%, and asset C 10%, in what proportions of $100K would you allocate into assets A, B and C? i.e. Which scenario is most rational?
A > B > C
A > C > B
B > A > C
C >A > B
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
Exercise 1: Optimal Safe Investment
Anna has access to a perfect capital market with interest rate r = 0.15 (i.e. 15%) per period.
She also has the opportunity to purchase a private asset for price P. If she purchases the asset, she will
be able to invest any amount z > 0 in this private asset. If Anna invests z > 0 now, the asset will return
R(z) = 80.5 · vz
next period.
What is the largest amount P that Anna would be willing to pay for the private asset?
[Hint: What is the net present value, N PV (z), of the private investment opportunity? What is the optimal
investment z* that maximizes NPV(z).]
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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