A company has a process improvement initiative that is projected to increase revenue by $150,000 USD non- compounded per year. The budgeted cost of the initiative is $200.000 and supporting the initiative will cost
$30.000 for years two and three.
What is the projected return on investment over the first 3 years?
Correct Answer: A
Explanation
Return on investment (ROI) is a measure of the profitability of an investment, calculated as the ratio of the net benefit to the total cost. The net benefit is the difference between the revenue and the cost. The total cost is the sum of the initial and ongoing costs. In this case, the ROI over the first 3 years can be computed as follows:
RevenueInitial costOngoing costTotal costNet benefitROI=150,000×3=450,000=200,000=30,000×2=60,000=20 Therefore, the projected ROI over the first 3 years is73.08%, which is closest to option A. 44%.
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