I bought a horse for 10$ and sold it to a friend for 20$. I bought the same horse from the same person for 30$ and sold it to the same person for 40$ . What was my profit ?
If you came up with 10$ as the answer (20-10) + (20-30) + (40-30) , you fell into the trap of serial thinking.
If you came up with 20$ as the answer , you are right because these two are separate transactions.
Transaction 1 - You bought and sold the horse. Profit = 20 - 10 = 10$
Transaction 2 - You bought and sold the horse. Profit = 40-30 = 10$
Total profit = 10 + 10 = 20$
If you are financially savvy , you would do
profit = total cash inflow - total cash outflow
= (40 + 20) - ( 30 + 10)
= 60 - 40
= 20$
Beware the dangers of serial thinking .
Start thinking laterally.
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