Question

You will want to invest in a business that requires an initial investment of $5,250. The business is expected to produce cash flows of $750 at the end of Year 1, $1,000 at the end of Year 2, $850 at the end of Year 3, and $6,250 at the end of Year 4. What rate of return would you earn in this business venture?

Answer 1

68.57%

Step-by-step explanation:

Rate of return is a profit on an investment over a given period of time, that is been expressed as a proportion of the original investment

To calculate the return rate, we can use the formula

Return rate = (current/market or sales value - initial cost ÷ initial cost) ×100

We have the following as;

Initial investment cost = 5250

Total returns = cash flow (year 1 + year 2 + year 3 + year 4)

= $750 + $1000 + $850 + $6250

Total return = $8850.

Our Return rate will be

= ($8850 - $5250 ÷ 5250) × 100

= (3600 ÷ 5250)× 100

= 0.6857× 100

Return rate = 68.57%

Our return rate is 68.57%

Answer 2

68.57%

Step-by-step explanation:

Recall that rate of return is the net gain or net loss that an investment yield over a given period of time expressed as a percentage of the initial investment cost.

Given that

Initial investment cost = 5250

Total returns or revenue = cash flow (year 1 + year 2 + year 3 + year 4)

= 750 + 1000 + 850 + 6250

= 8850.

Therefore,

rate of returns = (current value - initial value) ÷ initial value

= 8850 - 5250 ÷ 5250

= 3600 ÷ 5250

= 0.6857

= 68.57%