General Education Development (GED) Practice Exam

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If a potential business owner needs to invest $100,000 in equipment and has monthly expenses of $5,000, how many months will it take to earn back the initial investment if the monthly gross revenue is $8,000?

Less than 9 months
Less than 20 months
Less than 34 months
None of the above

The correct answer is: Less than 34 months

To determine how long it will take to earn back the initial investment, we first need to calculate the net monthly profit. The gross revenue each month is $8,000, and the monthly expenses are $5,000. Therefore, the profit earned each month would be: Monthly Profit = Monthly Gross Revenue - Monthly Expenses Monthly Profit = $8,000 - $5,000 = $3,000 Next, we need to see how many months it will take to cover the initial investment of $100,000 using the monthly profit. We can do this by dividing the total investment by the monthly profit: Months to Recover Investment = Initial Investment / Monthly Profit Months to Recover Investment = $100,000 / $3,000 ≈ 33.33 Since it isn't possible to earn a fraction of a month, we round up to 34 months. This indicates that it will take a little over 33 months to fully recoup the initial investment, confirming that the correct choice is indeed less than 34 months. Hence, the answer correctly estimates the time frame required for the business owner to recover the investment through the monthly profits generated.