What formula represents the calculation of Money on Money (MoM) return?

What formula represents the calculation of Money on Money (MoM) return?

• A. Equity Proceeds/Equity Invested
• B. Money Returned/Money Invested
• C. Debt Leverage/Equity Raised
• D. Residual Value/Paid in Capital

Answer: (B)

The calculation of Money on Money (MoM) return is accurately represented by the formula Money Returned/Money Invested. This indicator measures the total return generated from an investment compared to the amount of capital initially invested. It effectively reflects how many times over the investor's capital has been returned, allowing for a clear assessment of investment performance. In contrasting this with the other choices, the concept of equity proceeds divided by equity invested only pertains to equity investments and may not cover the broader scope of total cash flows that MoM encompasses. Debt leverage over equity raised is a ratio that discusses financing structure rather than returns on invested capital. Similarly, using residual value relative to paid-in capital focuses on a specific valuation metric that does not capture the concept of returns as MoM does. By emphasizing both the return and initial investment, the right formula provides a clear and straightforward way to evaluate the success of an investment, critical for understanding performance in private capital advisory contexts.

The calculation of Money on Money (MoM) return is accurately represented by the formula Money Returned/Money Invested. This indicator measures the total return generated from an investment compared to the amount of capital initially invested. It effectively reflects how many times over the investor's capital has been returned, allowing for a clear assessment of investment performance.

In contrasting this with the other choices, the concept of equity proceeds divided by equity invested only pertains to equity investments and may not cover the broader scope of total cash flows that MoM encompasses. Debt leverage over equity raised is a ratio that discusses financing structure rather than returns on invested capital. Similarly, using residual value relative to paid-in capital focuses on a specific valuation metric that does not capture the concept of returns as MoM does.

By emphasizing both the return and initial investment, the right formula provides a clear and straightforward way to evaluate the success of an investment, critical for understanding performance in private capital advisory contexts.