What amount will the investor loose? (Math problem)?

Question

Can you solve this question? And tell me how..

A business owner invests $50,000 in another company that has annual sales of $2,500,000 and that pays investors 5% of net profit each year. What amount will the investor lose if the other company goes out of business?

Answer 1

There's not enough information.
Annual Sales (not profit) of $2,500,000
5% of net profit paid to investors.

The problem doesn't state how much profit there is (5% of what? Sales minus expenses is ?) nor does it state how long it stays in business.

One could assume that if it goes out of business, it's because it is losing money (no profit). If so, the investor loses $50,000 unless there are proceeds from the sale of equipment, furnishings, etc from the business.

Answer 2

The investor stands to lose his $50,000 initial investment minus the value of his share of any assets the bankrupt company has left over once its debts have been paid (if any) and any money he might have recieved from the company before it went bankrupt.

Unfortunately there isn't actually a 'solution' to the problem if you want an exact number. Sales and profits are actually not the same thing (sales are the total amount of money a company recieves before business expenses like salaries and taxes are taken into account.)

Answer 3

He wont lose anything because 5 percent times 2 500 000 is 125 000 so the invester comes out 75 thousand ahead.

Answer 4

$50,000 if it goes out of business right away and an extra $125,000 per year after that.