Orbit Ltd. has 30,000 shares outstanding and earned $30,000 on capital invested of $90,000 last year. What is the likely impact of an investment opportunity to issue 10,000 more shares for $30,000 to earn an additional $14,000?

Question

Quizplus · Accepted Answer

By issuing 10,000 more shares for $30,000, Orbit Ltd. will have a total capital invested of $120,000 ($90,000 + $30,000). If this new capital can earn an additional $14,000, the return on the new investment will be 46.67% ($14,000 / $30,000). This return is higher than the previous return of 33.33% ($30,000 / $90,000), indicating that the new investment is relatively more profitable. Therefore, the best choice is C.

Orbit Ltd Has 30,000 Shares Outstanding and Earned $30,000 on Capital