when you anticipate that the facility will demonstrate a return on the investmen
ID: 2761739 • Letter: W
Question
when you anticipate that the facility will demonstrate a return on the investment (ROI): Capital costs of construction budget: $1,000,000 (5-year note) Capital cost of equipment budget: $1,000,000 (5-year) O&M budget: $500,000/year Forecasted revenue generation: $1,000,000/year Useful life of plant: 15 years minimum Loan interest rate: 5% (5 year note) Operating hours: Monday through Friday: 0800hrs – 1700hrs Available personnel: 4 staff members ($47/hr includes benefits). Need to see the formula for the ROI and how long will it take for the ROI to be realized.
Explanation / Answer
Calculation of ROI:
Capital costs of construction budget
$ 1,000,000
Add: Capital cost of equipment budget
$ 1,000,000
Total Investment (A)
$ 2,000,000
Forecasted revenue generation
$ 1,000,000
Less: O&M
$ (500,000)
Less: Interest on loan (1000000*5%)
$ (50,000)
Net income (B)
$ 450,000
ROI (B/A)
22.50%
Calculation of ROI:
Capital costs of construction budget
$ 1,000,000
Add: Capital cost of equipment budget
$ 1,000,000
Total Investment (A)
$ 2,000,000
Forecasted revenue generation
$ 1,000,000
Less: O&M
$ (500,000)
Less: Interest on loan (1000000*5%)
$ (50,000)
Net income (B)
$ 450,000
ROI (B/A)
22.50%
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