# ROI and operating profit calculation

case math
New answer on Jun 27, 2021
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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!