Funny Money: 1+1=$50M??

[Larry Honig]

Valdis.Kletnieks at VT.EDU wrote:
> 
> On Sun, 30 Mar 1997 01:25:23 CST, you said:
> > 2. The yield is not 15 times. You show "$1m in"...above I show $50m in...
> >       and $15 million out, that is 30% return on the investment of $50m...
> 
> Umm.. Jim? In a previous life, did you  ever work as an accountant for
> a movie studio, computing percents of the net on  movies so actors get
> screwed out of money?
> 
> You   have to  keep  "your"   money  and "their"   money seperate when
> computing return on investment.   If you spend $1M  to  buy and run  a
> bakery,  sell    $50M  worth of   bread   at    $2/loaf, spend $35M on
> flour and payroll,  and  get  $15M   in profits, you have  about 1500%
> profits.
> 
> Or at least  until somebody else invests  $1M to build another bakery,
> and sells $37.5M of bread at $1.50 a loaf, starting  a price war until
> prices drop down to  whatever  $35.2M works out to   a loaf, at  which
> point you've put in $1M of your money, taken in  $35.2M, spent $35M of
> it on flour and payroll, and kept $200K, for a 20% return or so.
> 
> Now, what you originally *said* was that  since you'd be making $15M a
> year, you arbitrarily set the "value" at 5X  higher (or $75M), to give
> a "yield" of 20%, and then made it a more conservative $50M.  However,
> the "value" is *NOT* the same thing as the actual money put in.  You
> actually put in $1M.  Your customers paid you $16M.  You pocket $15M.
> 
> Your other $49M   is irrelevant.  Otherwise,   I could write  myself a
> check for $1,498M, put  it in my pocket,  and offer to  do the job for
> what would be essentially non-profit  0.0001% return on my investment,
> since I'd only make $15M on my $1.5 billion....
> 

Thank you. Despite comet Hale-Bopp, apparently 15 divided by 1 is still
seen to equal 1500%.

/Larry