Question

You are using ROI to evaluate a project that requires investments of $500 in each of the first 3 years, and yields annual income of $100, $50, and $25 in each of the first 3 years. What would happen to ROI if the annual incomes double?

Answer 1

Answer:

ROI doubles

Explanation:

The formula to compute the return on investment is shown below:

Return on investment = (Annual income) ÷ (Initial investment)

If we take the first case,

Annual income = $100

And, the investment = $500

So, the ROI = $100 ÷ $500 = 0.2

If the annual income doubles i.e $200

So, the ROI = $200  ÷ $500 = 0.4

So in the given case, the ROI also doubles