Larry is trying to decide whether to purchase a new bulldozer to expand his business.He is confident he has enough work to keep the bulldozer busy and that repaying the loan will not be a problem.What advice would you give Lance?
A)If the interest rate on the loan is less than the return on assets for the bulldozer, buy.
B)If the return on this asset is more than the return on his equity, don't buy.
C)If his current return on equity is greater than the return on this asset, buy.
D)If his total asset turnover rate is greater than one, don't buy.

Question

Quizplus · Accepted Answer

Larry should consider the interest rate on the loan and compare it to the return on assets for the bulldozer. If the return on assets is greater than the interest rate on the loan, Larry should buy the bulldozer. This is because the bulldozer will generate more income than the cost of the loan, resulting in a profit.

Larry Is Trying to Decide Whether to Purchase a New