Rate of return on investment

Option A has the lowest investment at risk, B has the highest rate of return on investment, and C has the highest return. In general, the objective would be to maximize either the rate of return or the return, within the limits of available investment funds. 

It is also the responsibihty of management to estimate the probabilities for the success of individual projects after due consideration of all the data provided by the various departments. The rate of return on investment that is acceptable to management is a function of these responsibihties. Each industry has a reasonably well defined return on investment that reflects the degree of risk inherent in that industry. If management decisions are faulty, the company either will overspend or will miss opportunities. 

There are various indicators to determine the measure of profit for a process. In the following, we describe two of these indicators return on investment and payout period. The rate of return on investment (ROI) may be calculated as follows ... 

Various provisions m the federal income tax treat energy producers more or less favorably than other businesses. By changing the after-tax rate of return on investments in the energy sector, the Tax Code may alter the long-run supply of specific types of energy. 

Chapter 3 treats the most common type of objective function, the cost or revenue function. Historically, the majority of optimization applications have involved trade-offs between capital costs and operating costs. The nature of the trade-off depends on a number of assumptions such as the desired rate of return on investment, service life, depreciation method, and so on. While an objective function based on net present value is preferred for the purposes of optimization, discounted cash flow based on spreadsheet analysis can be employed as well. 

Economic factors—low requirement for investment capital, high net present value, high internal rate of return on investment, low risks from uncertainties. 

Rate of return on investment The efficiency ratio relating profit or cash flow to investment. 

Smelter Acid. If acid is produced involuntarily, as in a smelter operation, it is possible to estimate the cost of acid production in the same manner as that for an elemental sulfur acid plant. To the smelter, however, acid output is simply a mandated concomitant of the process required to produce the metal. Depending on the location of the smelter, the sources of demand, the size of the market, and competition from other producers, the acid sale price may or may not be sufficiently high even to yield a positive net-back, much less a desired rate of return on investment for the acid portion of the operation. This situation does not necessarily lead to closure. Positive or negative, the effect should be registered only in the overall profitability of the entire smelter operation. 

Detailed estimates similar to Table XIX were carried out for each case. The results are summarized and compared on Table XX. Factors used for labor, maintenance, taxes, and insurance are typical of those used for analyzing long-term, large scale commercial projects. The capital charge factor, the yearly rate at which the investment is charged to the project, was chosen to provide about a 15% after-tax discounted cash flow (DCF) rate of return on investment based on reasonable and commonly used assumptions for projects of this type and magnitude. These assumptions are summarized on Table XVIII. 

A summary of overall costs and realizations is given in Table 8.41, annual costs and revenues in Table 8.42, and total investment costs in Table 8.43, together with payout time and rates of return on investment. The effects of changes in investment and raw material cost, product prices, and operating volume are shown in Table 8.44. 

Many companies that do industrial research on catalysis choose not to make their own catalysts. Catalyst preparation and marketing is a specialty chemical, high technical service business. Manufacturers are under pressure to make their catalysts more active, more selective, and with a greater cost performance and lifetime than those of their competitors. Development of a new catalyst or process historically has taken many years (5-10) which is a disadvantage in project economics. The overall catalyst business is expanding and catalyst life is finite. The challenge is to make a cost-effective product with a sufficiently high rate of return on investment. 

Prices of feedstocks and electricity, costs of major pieces of capital equipment, operation and maintenance (O M) costs, and rates of return on investment are used to translate physical measures of inputs to total costs of operating the... 

RATE OF RETURN ON INVESTMENT. In engineering economic studies, rate of return on investment is ordinarily expressed on an annual percentage basis. The yearly profit divided by the total initial investment necessary represents the fractional return, and this fraction times 100 is the standard percent return on investment, ft... 

The standard method for reporting rate of return on investment has been outlined in the preceding paragraphs. Another method which is sometimes used for reporting rate of return is based on the assumption that it must be possible to obtain a certain minimum profit or return from an investment before the necessary capital outlay will be desirable. This minimum profit is included as a... 

Example 1 Determination of rate of return on investment-consideration of income-tax effects. A proposed manufacturing plant requires an initial fixed-capital investment of 900,000 and 100,000 of working capital. It is estimated that the annual income will be 800,000 and the annual expenses including depreciation will be 520,000 before income taxes. A minimum annual return of 15 percent before income taxes is required before the investment will be worthwhile. Income taxes amount to 34 percent of all pre-tax profits. 

Because of the reduced costs for the NTR computer, profitability evaluation including time value of money will tend to favor the replacement more than does the method of rate of return on investment as used for the solution of this example. 

I] = fixed capital investment i = average rate of return on investment, 12%... 

See also Rate of return on investments) Investor s rate of return, 301n. 

A plant manager must often decide if it is truly worthwhile to invest in new equipment. The fundamental question is, Will the company earn more money per year by investing in this equipment than it would if the money was invested in an interest-bearing financial account The calculation that is used to make this decision is called the percent rate of return on investment (ROI) and is carried out as follows ... 

Calculate the percent rate of return on investment for the plant manager s 10,000 investment described in the previous problem. 

Analysis on a national level and per social group Another and more precise approximation to the net aggregate consumption benefits of the project takes into account the adjustments necessary when the social value of funds devoted to investments exceed the social value of the same funds devoted to consumption. This is the case when the government has not been in a position to raise savings - and investment - to the point where the marginal rate of return on investment, q, is equal to the social rate of discount, i. If 100 units consumed now is considered equivalent to 110 units consumed the next year, the social rate of discount i is 10%. A unit of money withdrawn from consumption to an investment now should have a rate of return of at least i in order to increase the consumption in future years to the desired level. 

In engineering economic evaluation, rate of return on investment is the percentage ratio of average yearly profit (net cash flow) over the productive life of the project, divided by the total initial investment. This is calculated after income taxes have been deducted from the gross or pre-tax income. The remainder or net income may be used either for paying dividends, reinvestment, or can be spent for other means. ROI is defined by... 

Even if the corrections to accounting rates of return in these studies were sufficient to approximate IRRs (which they do only imperfectly), the differences in the rates of return might reflect differences in the riskiness (and, hence, the cost of capital) among industries. Thus, little can be said about the rate of return on investments in the pharmaceutical industry from these studies. 

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