Engineering Economy 7th Edition by Leland Blank ,Anthony Tarquin

تمرين 47

Two friends each invested $20,000 of their own (equity) funds. Stan, being more conservative, pur­chased utility and manufacturing corporation stocks. Theresa, being a risk taker, leveraged the $20,000 and purchased a $100,000 condo for rental property. Considering no taxes, dividends, or reve­nues, analyze these two purchases by doing the fol­lowing for one year after the funds were invested.
a) Determine the year-end values of their equity funds if there was a 10% increase in the value of the stocks and the condo.
b) Determine the year-end values of their equity funds if there was a 10% decrease in the value of the stocks and the condo.
c) Use your results to explain why leverage can be financially risky.