Marshall McBride inherited $10,000 from his Great Aunt Marth A.He invested $5,000 in a new,risky start-up venture,10^th Generation,Inc. ,and the other $5,000 in Major Chemicals,Inc,a well-known chemical company that's been around for years.Today,his financial planner called to inform him that the Return on Equity on 10^th Generation = 6.28%;and,Return on Equity on Major Chemicals = 10.50%.Which of the following facts is important information for Marshall McBride? A)The return on equity on new companies is always lower than the return on equity of well established firms. B)Investors willing to take added risk,expect higher returns. C)Return on equity is a liquidity ratio that has very little bearing on profitability. D)If Marshall wants to know how well his investments are performing,he should employ leverage ratios such as the debt to equity ratio.

Question

Quizplus · Accepted Answer

The fact that the Return on Equity on 10^th Generation is lower than the Return on Equity on Major Chemicals suggests that the start-up venture is more risky than the established chemical company. The statement that investors willing to take added risk expect higher returns supports this idea, as Marshall took a risk by investing in the start-up with the expectation of potentially higher returns. The other options are not relevant or accurate in this scenario.

Marshall McBride Inherited $10,000 from His Great Aunt Marth A Invested