Estate has an ROI of 16% based on revenues of $400,000.The residual income is $14,000 and the investment turnover is 2.What is the hurdle rate?

Question

Quizplus · Accepted Answer

Hurdle Rate = Residual Income / Investment Turnover

Residual income = $14,000
Investment turnover = 2

Hurdle rate = 14,000 / 2 = $7,000

ROI = Revenues / Investment = 16%

Investment = Revenues / ROI = $400,000 / 16% = $2,500,000

Since the investment is $2,500,000 and the hurdle rate is $7,000, the percentage is:

($7,000 / $2,500,000) * 100 = 0.28%

Therefore, the closest option is 9%.

Estate Has an ROI of 16% Based on Revenues of $400,000.The