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their investment cost to be ab operating costs to be about $1.5 million and their annual re ue-Cost) / Investment. Howev Following table.

their investment cost to be ab operating costs to be about $1.5 million and their annual re ue-Cost) / Investment. Howev Following table.

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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How likely are they to achieve at least a 15% ROI?
6. (Textbook 13.3) A company is considering whether or not to go ahead with a project. They expect their investment cost to be about $10 million, annual revenues to be about $2 million, and annual operating costs to be about $0.5 million. Hence, they expect their annual profit to be about $1.5 million and their annual return on investment to be about 15%. Remember that ROI = (Revenue-Cost) / Investment. However, there is uncertainty in all of these numbers, as suggested in the following table. Expected Variability in Investment, Revenue, and Operating Cost Original 75% -20% -10% +10% +20% +30% Investment cost 0% 10% 10% 5% 0% Revenue 10% 15% 50% 15% 5% 5% Operating cost 10% 20% 40% 15% 15%
Transcribed Image Text:6. (Textbook 13.3) A company is considering whether or not to go ahead with a project. They expect their investment cost to be about $10 million, annual revenues to be about $2 million, and annual operating costs to be about $0.5 million. Hence, they expect their annual profit to be about $1.5 million and their annual return on investment to be about 15%. Remember that ROI = (Revenue-Cost) / Investment. However, there is uncertainty in all of these numbers, as suggested in the following table. Expected Variability in Investment, Revenue, and Operating Cost Original 75% -20% -10% +10% +20% +30% Investment cost 0% 10% 10% 5% 0% Revenue 10% 15% 50% 15% 5% 5% Operating cost 10% 20% 40% 15% 15%
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