Question

Bond issuance: 20% of total funds, requires 15% interest per year Bank loan: 60% of total funds, requires 9.5% interest per year Preferred Stock issuance: 20% of total funds, requires 5% dividend per year What is Valentino’s average rate of return on the new project?

Answer 1

Answer: 28.57%

Step-by-step explanation:

Average return given the variables will be;

`Average rate of return = (Annual net income)/(Average investment)`

Average rate of return =
`(1,000,000)/((7,000,000)/(2) )`

Average rate of return = 1,000,000/3,500,000

Average rate of return = 28.57%