Interest on capital alters profit sharing due to unequal capitals

Steps:

• Compute annual interest: Charlie $2,000 × 10$200; Daphne $3,000 × 10$300; total $500.
• With interest, Charlie's share = $200 + ½ (total profit P −$500).
• Without interest, Charlie's share = ½ P.
• Net effect: $200 + ½P −$250 − ½P = −$50, so Charlie's share decreases by$50 regardless of P (if P > $500).

Why A is correct:

• Interest on capital is an appropriation prioritizing higher capital holders; Daphne's $100 excess interest reduces Charlie's residual share under equal ratio.

Why the others are wrong:

• B (increased): Ignores Daphne's larger capital drawing more interest, transferring value from Charlie.
• C (no effect): Assumes equal capitals, but $2,000 vs.$3,000 creates imbalance.
• D (other effect): No evidence of alternative impacts like varying rates or adjustments.

Final answer: A