ROI and operating profit calculation

case math
New answer on Jun 27, 2021
3 Answers
453 Views
Anonymous A asked on Jun 27, 2021

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?

(edited)

Overview of answers

Upvotes
  • Upvotes
  • Date ascending
  • Date descending
Best answer
Francesco
Expert
Content Creator
replied on Jun 27, 2021
#1 Coach for Sessions (4.000+) | 1.500+ 5-Star Reviews | Proven Success (➡ InterviewOffers.com) | Ex BCG | 9Y+ Coaching

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

Was this answer helpful?
Henning
Expert
replied on Jun 27, 2021
Bain | passed >15 MBB interviews as a candidate

An annual ROI of 50% would be $2.5M per year or $12.5M over the course of 5 years.

Was this answer helpful?
Ian
Expert
Content Creator
replied on Jun 27, 2021
MBB | 100% personal interview success rate (8/8) and 95% candidate success rate | Personalized interview prep

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!

Was this answer helpful?
Francesco gave the best answer

Francesco

Content Creator
#1 Coach for Sessions (4.000+) | 1.500+ 5-Star Reviews | Proven Success (➡ InterviewOffers.com) | Ex BCG | 9Y+ Coaching
4,179
Meetings
30,772
Q&A Upvotes
322
Awards
5.0
1531 Reviews