Question

Suppose you decide to start your own business. You quit a job at which you earned $38,000 per year and invest $20,000 of your own money (which had been earning 10% in a mutual fund). You incur raw materials costs of $23,000. After 1 year you earn revenues of $23,000 at your new business. You decide to go back to your old job, and you sell your business for $20,000. A friend tells you "Hey, you broke even-- you got your money back when you sold the business." So, what do you think? What is the profit on your 1-year business venture? (Assume no other input costs, and be sure to count the sale of your business as income.)

I saw another answer on here where someone said it was $20,000, but that answer is incorrect  because it does not include the 10% APY

Answer 1