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18 February, 00:35

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?

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  1. 18 February, 00:46
    0
    68.57%

    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%
  2. 18 February, 00:47
    0
    68.57%

    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%
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