A firm with spare cash

a) should always reinvest it in new equipment.

b) should pay it out to shareholders unless the firm can earn a higher rate of return on the cash than the shareholders can earn by investing in the capital market.

c) should invest it in the safest projects available.

d) Should always invest it in U.S. equities.

Which of the following is not a function of financial markets?

a) allow individuals to diversify their risk.

b) provide convenient ways to make large payments.

c) allow individuals to purchase a range of goods online.

d) provide funds to companies that wish to expand.

A firm's after-tax operating income was $1,000,000 in 2016. It started the year with total capital of $8,000,000 and raised an additional $1 million of capital during the year. The additional capital raised during 2016 only started to affect the operating income in 2017. Which value best represents the return on capital for 2016?

a) 12.5%

b) 11.8%

c) 11.1%

d) 10.0%