Question

An initial capital investment is $360,000 and has a 6-year life. Working capital is $40,000. Total net profit after taxes over 6 years is estimated at $167,000.

Find The Rate of return on the investment (ROI)

Answer 1

Rate of return on the investment (ROI)

Annual Net Profit = Total Net Profit over 6 years / Number of years

= $167,000 / 6 Years

= $27,833.33 per year

Initial Investment = Initial Capital Investment + Working Capital Required

= $360,000 + $40,000

= $400,000

Therefore, the Rate of return on the investment (ROI) = [Annual Net Profit / Initial Investment] x 100

= [$27,833.33 / $400,000] x 100

= 6.96%

“Hence, the Rate of return on the investment (ROI) will be 6.96%”