Reference no: EM131806489

Qusetion: A group of businessmen formed a partnership to buy and race an Indianapolis-type racing car. They agreed to pay an individual $50,000 for the car and associated equipment. The payment was to be in a lump sum at the end of the year. In what must have been "beginner's luck," the group won a major race the first week and $80,000. The rest of the first year, however, was not as good: at the end of the first year, the group had to pay out $35,000 for expenses plus the $50,000 for the car and equipment. The second year was a poor one: the group had to pay $70,000 just to clear up the racing debts at the end of the year. During the third and fourth years, racing income just equaled costs. When the group was approached by a prospective buyer for the car, they readily accepted $80,000 cash, which was paid at the end of the fourth year. What rate of return did the businessmen obtain from their racing venture?