Hi,

You defintely have to separate investments from ops cost.
If you need to do a P&L, you would put investment under fixed cost without forgetting to depreciate it over a certain duration (defined by the nature of the invstment itself).

Let's take an example to be clear.
Assuming we produce chocolate bars, that we sell at 10$ (such a luxury !), the cost of producting this is 2$ (chocolate + prod related cost), and we need to invest upfront in a molding machine of 100 000 $. If we sell 10 000 chocolate bars the P&L would look like :

- Revenue is 10 x 10 000 = 100 000 $

- Operatig cost is 2 x 10 000 = 20 000 $

- Operating margin = Revenu - ops cost = 80 000 $

- investment is 100 000$ assuming that we depreciate the machine over 5 years would be 20 000 $ / year

- So annual Profit (befor tax) would be : 80 000 - 20 000 = 60 000 $

If you are prompted to calculate the break even volume this would then be done differently :

Break even volume = 100 000 $ / (10$-2$) = 12 500 units > so based on the previous volume investment would be paid back in 2 years.

Hope this helps

Best

Benjamin

Hi,

It's really hard to help you without knowing the objective of the case. Is it a certain NPV, ROI, Profits, Market share, etc?

Depending on the objective it may be either e separate subbranch (e.g. NPV formula) or a part of a bigger bucket with the size of the investment, terms, investment horizon, risks.

Best