Georgia Assessments for the Certification of Educators GACE Practice Test

If a potential business owner projects that she will need to invest $100,000 in equipment to start a dry cleaning business, and the business' monthly expenses on rent, insurance, labor costs, and other incidentals are $5,000, how many months will it take for her to earn back her initial investment if the average monthly gross revenue is $8,000?

1. Less than 20 months

2. Less than 34 months

3. Less than 9 months

4. None of the above

The correct answer is: Less than 9 months

To determine how many months it will take for the potential business owner to earn back her initial investment of $100,000, we first need to calculate her net earnings per month. The average monthly gross revenue from the business is $8,000. From this, we need to subtract the monthly expenses, which total $5,000. This calculation gives: \[ \text{Net Earnings per Month} = \text{Gross Revenue} - \text{Expenses} \] \[ = 8000 - 5000 = 3000 \] With net earnings of $3,000 per month, we can now figure out how many months it will take to recover the initial investment of $100,000. This is found by dividing the total investment by the monthly net earnings: \[ \text{Months to Earn Back Investment} = \frac{\text{Initial Investment}}{\text{Net Earnings per Month}} \] \[ = \frac{100000}{3000} \approx 33.33 \] Since 33.33 months fall slightly under 34 months, the correct choice is that it will take less than 34 months to earn back the initial investment. While option C suggests