Refer to Scenario 7.2 below to answer the questions that follow.
SCENARIO 7.2: You are the owner and only employee of a company that sets odds for sporting events. Last year you earned a total revenue of $100,000. Your costs for rent and supplies were $50,000. To start this business you invested an amount of your own capital that could pay you a return of $20,000 a year.
-Refer to Scenario 7.2. A yearly normal rate of return for your company is
A) $20,000.
B) $40,000.
C) $60,000.
D) $100,000.

Question

Quizplus · Accepted Answer

The normal rate of return is the return that the owner could have earned by investing the capital in a different investment with a similar level of risk. In this case, the owner could have earned a return of $20,000 a year by investing the capital in a different investment. Therefore, the normal rate of return for the company is $20,000.