Question details

BUSN380 Week 7 TCOs 6 & 7 Problem Set 7 – Calculating Net Asset Value, Net Worth, Rate o
$ 15.00

.  Calculating the Rate of Return of Investment Using Financial Leverage. Suppose Shaan invested just $10,000 of his own money and had a $90,000 mortgage with an interest rate of 8.5 percent. If after three years he sold the property for $120,000.

   Ans.

      a.   What is his gross profit?

Selling Price – Purchase Price

= $120,000 – $100,000 = $20,000

 

      b.   What is his net profit/loss? 

Gross Profit – Interest Paid for 3 years

= $20,000 – ($90,000 x .085 = $7,650 x 3)

= $20,000 - $22,950`= - $2,950.

 

      c.   What is the rate of return on investment? 

            -$2,950 / $20,000 = - 29.5 %

 

Available solutions