Georgia Assessments for the Certification of Educators GACE Practice Test

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A potential business owner needs to invest $100,000 in equipment and has monthly expenses of $5,000 for rent, insurance, labor costs, and incidentals. If the average monthly gross revenue is $8,000, roughly how many months will it take to recover the initial investment?

Less than 9 months
Less than 20 months
Less than 34 months
None of these

The correct answer is: Less than 34 months

To determine how many months it will take for the potential business owner to recover the initial investment of $100,000, we need to consider both the revenues generated and the ongoing monthly expenses. The business generates an average monthly gross revenue of $8,000. However, there are monthly expenses totaling $5,000. Therefore, the net revenue per month, which indicates how much of the gross revenue is left after expenses, can be calculated as follows: Monthly Net Revenue = Monthly Gross Revenue - Monthly Expenses Monthly Net Revenue = $8,000 - $5,000 = $3,000 To find out how many months it will take to recover the initial investment, divide the total investment by the monthly net revenue: Months to Recover Investment = Initial Investment / Monthly Net Revenue Months to Recover Investment = $100,000 / $3,000 = 33.33 months Since the question asks for a rough estimate, we can round this to about 34 months. Therefore, the correct option reflects that it will take approximately 34 months to recover the initial investment, making this option the most accurate choice among the provided alternatives.