Calculating Return on Investment (ROI) for a Project
How would you calculate the project's return on investment (ROI) after the first 12 months?
a. (12000-5600) : 5600 = 114%
b. (5600-5000) : 12000 = 5 %
c. (12000-5600) : 5000 = 128%
d. (12000-5000) : 5000 =140%
Using the (G-C) formula: Where C is the cost, ROI is the return on investment, and G is the gross income or revenue, C is the return on investment:
Cost (C) = $5,000 x $600 = $5,600 Return on Investment (ROI) = (G - C): C = ($12,000 - $5,600) : Since $5,600 equals 114 percent, (a) is the correct response.
ROI (Return on Investment) is a crucial metric used to evaluate the profitability and effectiveness of an investment. It signifies the ratio of an investment's return to its cost.
The formula to calculate ROI is:
ROI = (Net Profit / Cost of Investment) x 100%
Where Net Profit is the revenue generated by the investment minus its cost. For example, if you invest $10,000 in a project that generates $15,000 in revenue, the ROI would be:
ROI = ($5,000 / $10,000) x 100% = 50%
To delve deeper into the concept of ROI and its significance in financial decision-making, check out additional resources on the topic.