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Tom owns 22 hotdog stands. Tom earned $10,000 last year from the hotdog stands business. For...

Tom owns 22 hotdog stands.

Tom earned $10,000 last year from the hotdog stands business.

For $4000, Tom can build two more stands, each stand costs $2000. Assume it costed Tom $2000 to build each of 22 stands.

If Tom has 24 stands instead of 22, its yearly income will rise from $10,000 to $11,000. Let’s assume Tom indeed added two more stands using the money he earned last year.

David

Everything is the same except for David borrows $4000 at 6% interest rate to finance two more stands. What would be ROE for David's plan?   

24.4%

14.8%

18.3%

12.2%

Solutions

Expert Solution

jeff jeffy answered 6 months ago
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