Allied Investment Fund lends $200,000 for each new idea.The Fund's history is that it selects high-risk projects or ideas that hit 10% of the time.What rate of return must each successful project pay the Fund for it to break even?

Question

Quizplus · Accepted Answer

For the fund to break even, the successful projects must cover the cost of the 90% that fail. If 1 out of 10 projects succeeds, it needs to cover the investment in all 10 projects. Therefore, it must return the original investment ($200,000) times 10, which is $2,000,000. To find the rate of return: ($2,000,000 - $200,000) / $200,000 = 900%.

Allied Investment Fund Lends $200,000 for Each New Idea