A transport company purchased a truck for $40,000. The operating cost was $2,000 per month, with average revenues of $4,000 per month. The truck was sold for $16,000 after two years. The company's monthly rate of return was closest to:
3%
5%
7%
10%
To calculate the monthly rate of return, we need to determine the total profits made in two years and then convert it to a monthly rate.
First, let's calculate the total costs for the two years. The truck was purchased for $40,000, and the operating cost was $2,000 per month for 24 months (2 years). So the total operating cost is:
$2,000 * 24 = $48,000
Next, let's calculate the total revenues for the two years. The average monthly revenue was $4,000 for 24 months. So the total revenue is:
$4,000 * 24 = $96,000
To find the total profits, we subtract the total costs from the total revenues:
$96,000 - $48,000 = $48,000
Finally, let's calculate the rate of return. The rate of return is the profit divided by the initial cost, multiplied by 100 to get it in percentage form:
Rate of return = (Total Profits / Initial Cost) * 100
Rate of return = ($48,000 / $40,000) * 100
Rate of return = 120%
Now, to find the monthly rate of return, we need to divide the rate of return by 24 months:
Monthly rate of return = 120% / 24
Monthly rate of return = 5%
Therefore, the company's monthly rate of return is closest to 5%.