The case study (from the book AQA AS Business Studies Student Unit Guide: Unit 2 Managing a Business, written by Isobel Rollitt James) tells us that the business borrows £2,000,000 from the bank at 9% interest to fund its new premises and equipment, and that the anticipated profit per year is £300,000.
I've calculated the return on capital to be 15% - £300,000/£2,000,000 then * 100 = 15%
The question then asks to explain whether or not it is financially worthwhile.
Can someone please help me / clear up the whole interest issue. I thought it meant that the bank would want back the £2m PLUS 9% which is £180,000 so total £2,180,000? So if the company paid back 9% / year that would mean it would take £2,180,000 / £180,000 = 12 (12.11) years to pay back the total? Am I correct or am I way off?
Help will be appreciated!
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- Thread Starter
- 27-11-2011 16:42