Genaro needs a return of 40 percent for his one-year investment in a property. He believes that he can sell the property at the end of the year for $150,000 and that the property will provide him with rental income of $25,000. What is the maximum amount that Genaro should be willing to pay for the property?

Question

Quizplus · Accepted Answer

To achieve a 40% return on investment, Genaro needs to make an overall profit of 40% on his investment. Let X be the amount he pays for the property initially. Then his profit at the end of the year will be:

Profit = Rental Income + Selling Price - Initial Investment
Profit = $25,000 + $150,000 - X

To achieve a 40% return, the profit needs to be 40% of the initial investment:

0.4 X = $25,000 + $150,000 - X
1.4 X = $175,000
X = $125,000

Therefore, Genaro should be willing to pay a maximum of $125,000 for the property in order to achieve his desired return of 40%. So the best choice is B).

Genaro Needs a Return of 40 Percent for His One-Year