Suppose that the company Mama's Pies adds another store to sell its pastries. Supposed that it costs $400,000 to build the new store and assume that the new store will generate revenues of $450,000. What is the rate of return on this investment?

To calculate the rate of return on an investment, you need to determine the net profit generated by the investment and divide it by the initial investment amount.

To find the net profit, subtract the cost of building the new store from the revenues generated by the store. In this case, the net profit would be $450,000 - $400,000 = $50,000.

Now, divide the net profit by the initial investment and multiply by 100 to get the percentage rate of return.

($50,000 / $400,000) * 100 = 12.5%

Therefore, the rate of return on this investment is 12.5%.

80%

15