What is one key component needed to calculate cash-on-cash return?

The correct response highlights that the initial equity investment is a crucial element required to calculate cash-on-cash return. This financial metric measures the annual pre-tax cash flow generated by an investment as a percentage of the initial cash investment made. To compute the cash-on-cash return, the formula used is:

[ \text{Cash-on-cash return} = \frac{\text{Annual Cash Flow}}{\text{Initial Equity Investment}} ]

The initial equity investment serves as the base against which the annual cash flow is evaluated, providing investors with insights into the effectiveness of their cash investment and enabling them to gauge the profitability of their investment relative to the amount of cash they’ve put in.