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# Return on investment for profits after investment

financial return
Recent activity on Apr 11, 2019
1.5 k Views

Hello everybody,

I have recently worked on the Desert City case in the Yale Casebook. The case involved a project with an initial investment of \$110m and a yearly and constant profit of \$22m. Is there a metric that allows me to say that we get a profit of 20% of our investment back each year similar to a return on investment but without having a discount rate?

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Dear Alexander,

I just went through the case as to be able to provide an answer.
From what I understand, you are looking for a metric to express the profit (22M) vs investment (110M) without having to use NPV.

For this particular case, I would say you could rely on basic "common sense", which is a key skill as consultant. Often you won't have the time to go for the nitty gritty analysis and will have to use some "common sense".

The client expects a payback period of 3 years. Let's just ignore the discounting for this:

• Given the profit of 22M, the payback period without discounting would be 110M/22M = 5 years
• Given discounting will make the future profits lower today (dividing by (1+WACC)^years), the real payback period will be even longer
• Therefore, the client should not progress with this project

I truly hope this is of any help to you!

Kind regards,
Sibren

Not sure I understand your question, beause the way I interpret it is trivial: we generate a Yearly RoI of 20%. The Total RoI is [Yearly RoI] x [Number of Years].

Cheers, Sidi

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