George lends $200,000 for each new idea.George's history is that he selects low-risk projects or ideas that hit 80% of the time.What rate of return must each successful project pay George for him to break even?
A)20.50%
B)22.00%
C)23.50%
D)25.00%

Question

Quizplus · Accepted Answer

To break even, George needs to cover the losses from the 20% of projects that fail. If 80% of projects succeed, then each successful project must return enough to cover the $200,000 investment plus the losses from the failed projects. The break-even rate of return is calculated as 1/(success rate) - 1, which is 1/0.8 - 1 = 0.25 or 25%.

George Lends $200,000 for Each New Idea