Answer:
Tim's rate of return under these conditions would be 55.38%.
Explanation:
Rate of return refers to the income realized or to be realized from an investment expressed as a proportion of the cost of that investment.
For Time, his rate of return can be calculated using the rate of return formula as follows:
Rate of return = Net return / Purchase price .................... (1)
Where;
Rate of return = ?
Net return = Total realizable amount - Purchase price .......... (2)
Purchase price = $6,500
Total realizable amount = Cash flow generated + Amount to realize if sold = $4,000 + $6,100 = $10,100
Substitute the relevant values into equation (2), we have:
Net return = $10,100 - $6,500 = $3,600
Substitute the relevant values into equation (1), we have:
Rate of return = $3,600 / $6,100 = 0.5538, or 55.38%
Therefore, his rate of return under these conditions would be 55.38%.
Answer:
55.38%
Explanation:
Tim purchased a bounce house one year ago for $6,500
During the year it generated a cash flow of $4,000
If Tim sell the bounce house today, he would receive $6,100 for it
Therefore the rate of return under this condition can be calculated as follows.
= $6,100-$6,500+$4000/$6,500
= $3,600/$6,500
= 0.5538×100
= 55.38%
Hence the rate of return under this condition is 55.38%
