Question

Calculating the return on investment using financial leverage. suppose Dave invested only 20,000 of his own money and borrowed 180,000 interest-free from his rich father. what was his return on investment?

Answer 1

His return on investment (ROI) is based solely on money from his pocket.
If the profit is x dollars, the ROI is x/20000. Here Dave levered 10:1 with the help of his father.
If he had invested totally with his own money, the ROI would be x/200000, a much less impressive number even though the profit is the same.