Question

You have invested in a business that proudly reports that it is profitable. Your investment of $4,600 has produced a profit of $337. The managers think that if you leave your $4,600 invested with them, they should be able to generate $337 per year in profits for you in perpetuity. Evaluating other investment opportunities, you note that other long-term investments of similar risk offer an expected return of 7.89%. Should you remain invested in this firm?

Name: You have invested in a business that proudly reports that it is profitable. Your investment of 4,600 has produced a profit of337. The managers think that if you leave your 4,600 invested with them, they should be able to generate337 per year in profits for you in perpetuity. Evaluating other investment opportunities, you note that other long-term investments of similar risk offer an expected return of 7.89%. Should you remain invested in this firm?
Uploaded: 2022-03-05T14:17:51-08:00
Duration: 1 min 7 s
Channel: Patha Sharma

          You have invested in a business that proudly reports that it is profitable. Your investment of $4,600 has produced a profit of $337. The managers think that if you leave your $4,600 invested with them, they should be able to generate $337 per year in profits for you in perpetuity. Evaluating other investment opportunities, you note that other long-term investments of similar risk offer an expected return of 7.89%. Should you remain invested in this firm?

You have invested in a business that proudly reports that it is profitable. Your investment of 4,600 has produced a profit of337. The managers think that if you leave your 4,600 invested with them, they should be able to generate337 per year in profits for you in perpetuity. Evaluating other investment opportunities, you note that other long-term investments of similar risk offer an expected return of 7.89%. Should you remain invested in this firm?

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Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

Instant Answer

Solved by Expert Patha Sharma

03/05/2022

Step 1

The investment is $4600 and the annual profit is $337. The rate of return is calculated as: Rate of Return $= \frac{\text{Annual Profit}}{\text{Investment}} \times 100\%$ Rate of Return $= \frac{337}{4600} \times 100\% \approx 7.33\%$ Show more…

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You have invested in a business that proudly reports that it is profitable. Your investment of $4,600 has produced a profit of $337. The managers think that if you leave your $4,600 invested with them, they should be able to generate $337 per year in profits for you in perpetuity. Evaluating other investment opportunities, you note that other long-term investments of similar risk offer an expected return of 7.89%. Should you remain invested in this firm?