Calculate preferred return, invested equity, or preferred rate from any two inputs in this investment calculator with dollar and percentage values.
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Preferred Return Formula
The preferred return is the amount an investor is entitled to receive before other profit distributions, based on the invested equity and the preferred rate.
PR = IE * (r/100)
- PR = preferred return in dollars
- IE = invested equity in dollars
- r = preferred rate as a percent
To calculate invested equity when you know the preferred return and preferred rate:
IE = PR / (r/100)
To calculate the preferred rate when you know the preferred return and invested equity:
r = (PR / IE) * 100
- Preferred Return: Use this when you know the invested equity and preferred rate.
- Invested Equity: Use this when you know the preferred return amount and the preferred rate.
- Preferred Rate: Use this when you know the invested equity and the preferred return amount.
Common Preferred Return Amounts by Equity and Rate
The table below shows annual preferred return amounts for common invested equity levels and preferred rates.
| Invested Equity | 6% Preferred Return | 8% Preferred Return | 10% Preferred Return |
|---|---|---|---|
| $50,000 | $3,000 | $4,000 | $5,000 |
| $100,000 | $6,000 | $8,000 | $10,000 |
| $250,000 | $15,000 | $20,000 | $25,000 |
| $500,000 | $30,000 | $40,000 | $50,000 |
Preferred Rate Interpretation
| Preferred Rate | Meaning per $100,000 Invested | Annual Preferred Return |
|---|---|---|
| 5% | $5 for every $100 invested | $5,000 |
| 7% | $7 for every $100 invested | $7,000 |
| 8% | $8 for every $100 invested | $8,000 |
| 10% | $10 for every $100 invested | $10,000 |
Example Problems
Example 1: Calculate preferred return
You invest $200,000 at an 8% preferred rate.
PR = 200000 * (8/100)
PR = 16000
The preferred return is $16,000.
Example 2: Calculate preferred rate
You receive a $12,000 preferred return on $150,000 of invested equity.
r = (12000 / 150000) * 100
r = 8
The preferred rate is 8%.
FAQ
What is a preferred return?
A preferred return is a priority return paid to an investor before remaining profits are split. For example, if you invest $100,000 with an 8% preferred return, the preferred return amount is $8,000 for the period covered by the rate.
Is preferred return the same as total profit?
No. Preferred return is only the priority return based on the invested equity and preferred rate. Total profit may be higher or lower depending on the deal terms, cash flow, sale proceeds, and distribution waterfall.
Is the preferred rate always annual?
Preferred rates are commonly stated as annual rates, but not always. You should check the agreement. If the rate is annual and you need a monthly estimate, divide the annual preferred return by 12.
