I'm a little confused on the math here, if the client is wondering whether they should invest $5M , expecting a ROI of 50% over 5 years..what would be the operational profit they need to generate to achieve this? The answer is $12.5 M but I don't get how they arrived at this number. Is ROI formula (Net profit -Investment cost)/Investment cost or Net Profit/Investment cost?
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Hi there,
Given the solution, I assume they mean 50% ROI per year.
If that’s the case, given the ROI should be 50% of the investment, the yearly return needed is going to be 5*0,5=2.5 (given ROI = Net Profit / Investment).
Given the period is 5 years, the total is 2.5*5=$12,5M.
Hope this helps,
Francesco
An annual ROI of 50% would be $2.5M per year or $12.5M over the course of 5 years.
Hi there,
Are you able to link the case? I agree with the other coaches here but if we can get the case it can help us to be sure!
