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?
Thanks for your help!
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:
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
