Question

A partnership agreement provides that, at sale, cash proceeds are distributed first to Ms. Jones in an amount equal to her original investment less any cash distributions previously received, then split 60%-40% between Ms. Jones and Mr. Smith, respectively. Assume that the cash flows from sale are $1 million. How much would Ms. Jones receive if her initial investment was $600,000 and she previously received $100,000 in distributions

Answer 1

$800,000

Step-by-step explanation:

The total amount received by Ms. Jones (A) is given by the following expression:

`A = I-D + (S-(I-D))*0.6`

Where 'I' is Ms. Jones initial investment, 'D' are cash distributions previously received and 'S' is the cash flow from sales.

The amount received by Ms. Jones is:

`A = 600,000-100,000 + (1,000,000-(600,000-100,000))*0.6\\A= 800,000`

She would receive $800,000.