Question

Hello, so for a project in management accounting we were assigned a fake kayak selling/renting company that opporates in new england. The project gave us 1,000 to invest in expansion and the locations we chose are newburyport MA, new London County CT, Pawtucket RI, and South Portland ME. We decided to invest the million on propertys in these locations however our professor wants us to calculate the ROI on these investments somehow with only using internet sources so I don;t actually know how to do that.

Please tell me what the potential revenue could be and the ROI based on data about kayak sales found anywhere on the internet. Thank you.

Answer 1

Return on Investment:

1) Return on investment is a performance measure used to evaluate the efficiency of an investment.

2) It helps to compare the efficiency of a different investment.Generally speaking it means how much return we are earning from an investment we made.

The formula for return on investment will be

ROI: (Current Market value of Investment - Cost of Investment )/ cost of Investment

Or

(P1 - P0 + Dividend+ Capital gain - Expenses)/P0

This Return on investment is very useful for expanding the projects by the company . If return on investment is positive then the project will be worthwhile, if it is negative then it is not worth to invest.. If it is negative ROI then it will impact on Profit because it will occur Net loss only.

Ex: If Fake kayak invested 1000 in MA , London and sold his stock shares for 1200 in one year later. Then return on investment will be 20% .because  

ROI : (1200 - 1000)/1000*100 = 20%

IF after one year instead of 1200 it becomes 600 then ROI will be negative only. I.e

(600- 1000)/1000*100= - 40%

It means it is having negative ROI so we should not make investment or if it already invested then we should make hedging by way of options, futures, SWAP _ forward contract with the help of this we can reduce our loss.

Return on investment should be compared with the same period, we should not compared with different periods because if we compare with same period then only we will get correct comparison.

Return on investment can be used in conjunction with Rate of Return which takes in account project team. With the help of applying Net Present Value we will get an Real Rate of return.

Return on Investment = Operating Profit Margin* Asset Turnover

If we are having the details of operating profit margin and asset turnover then we can use this formula.

Return on Investment can be calculated in different methods one of them are net Income method.

Net income can be calculated after reducing the all expenses and taxes if any i.e net profit after tax that is divided by Investment. Then we will get return on investment.

Ex : Net profit after tax 10000, Investment value is 200000 then the ROI will be 5.0%.

Calculation of Net profit after tax

Income Statement for the period

Particulars	Amount
Revenue	100000
- cost of Goods sold	- 20000
Gross Profit	80000
Exoenses	30000
Net Profit	20000
Taxes	- 10000
Profit After Taxes	10000