Question

To finance a new business, an entrepreneur needed $470,000. She funded 40 percent of this amount from her own savings. At the end of three years of operation, the entrepreneur had received $13,500 in profits and the investor had received $80,000. What was the three-year return on investment for the entrepreneur? (Round your answer to two decimal places.)

Answer 1

The amount the entrepreneur funded from her own savings is:

$470,000 x 40% = $188,000

So the amount funded by the investor is:

$470,000 - $188,000 = $282,000

After three years of operation, the entrepreneur received $13,500 in profits, so her total return is:

$13,500 + $188,000 = $201,500

The investor received $80,000 in profits, so the total return for the investor is:

$80,000 + $282,000 = $362,000

The three-year return on investment for the entrepreneur is the percentage increase in her investment, which is calculated as:

[(total return / initial investment) - 1] x 100

So the three-year return on investment for the entrepreneur is:

[($201,500 / $188,000) - 1] x 100 = 7.08%

Therefore, the three-year return on investment for the entrepreneur is 7.08%.