Return on the investment

The shortcoming of the maximum exposure and payout time is that they say nothing about what happens after the cashflow becomes positive (i.e. the investment is recouped). Neither do they give information about the return on the investment in terms of a ratio, which is useful in comparing projects. 

Essence of Profitability. If an investor purchases a computer in the morning and seUs it in the afternoon for a larger sum, then a return on the investment is realized. This is profit a reward for the effort (investment) made. A somewhat more difficult situation is the case of three choices having different purchase costs and expected selling prices ... 

This term is most familiar to people as the return on investment, or ROI. The ROI is defined as the interest rate that would result in a return on the invested capital equivalent to the project s return. For illustration, if we had an air abatement project where heat recovery was involved, and there was an overall ROI of 30 percent, that s financially equivalent to investing resources in the right stock and having its price go up 30 percent. This is called a Primitive ROI. ... 

Cost - The more costly the investment, the longer you will likely wait for a return on the investment-,... 

Considering the energy and maintenance costs during the life cycle, the cheapest investment is not always the best. It may, for instance, be profitable to buy a ventilation unit with a heat recovery system, which may increase the unit investment by 50%. The return on the investment in such a case may be in excess of 20%. 

It induces purposeful change and maximizes the return on the investment in learning. This is achieved by applying methods such as helping the mentee to analyse and reflect on what happened and to compare this to what was intended. This, in turn, equips individuals with the ability to learn how to learn, a skill that will prove forever useful. 

Table II contains a rough comparison of execution times for the generation of one data point 6x10 random conformations of chains of 100 mass-points were placed each at 100 equally spaced radial positions of a pore with Aq=0.8. It is obvious that the increase in performance, i.e., a reduction in execution time to 20%, is an excellent return on the investment required to change five lines of a FORTRAN program. We fear, however, that this is a relatively rare situation.

D-E In this region the cumulative cash flow is positive. The project is earning a return on the investment. 

What must be the selling price if the return on the investment before taxes of the fully operating plant is to be 30% Assume that the plant is to be fully depreciated in 12 years using a straight-line method. 

A 30% return on the investment before taxes means a profit before taxes =... 

The problem with the economic analysis as presented in Example 10-1 is that it considers the plant to be operating at full capacity (a mature plant). Often it takes a couple of years, after the plant begins producing, for the sales volume to equal the plant capacity. During this time the return on the investment is less than that calculated for the mature plant. This is shown in Example 10-2. 

Often, as in the case of the return on the investment, expenses not incurred directly in the design and construction of the plant are excluded when the payout period is calculated. If the only prestartup expense considered is the fixed capital investment, a payout time of 3-5 years is reasonable. A time longer than this is considered unacceptable. 

This is the after-taxes return on the investment and assumes a mature plant. 

Since different values are usually obtained for the cost of money and the minimum return on the investment, it is desirable to use both. The former is used to determine the present value of all outlays and the latter to determine the present value of all incomes. If a positive net present value is obtained, this is an acceptable project. Then if a modified rate of return is determined, an idea can be obtained of how much better than merely acceptable it appears. This can be obtained by using the cost of money to determine the present value for all outlays and determining the interest rate for proceeds that will make the net present value zero. The advantage of the modified rate of return is that it evaluates outlays at a realistic rate. 

The calculations of the return on the investment and payout period follow. Those for the Net Present Value and Rate of Return are given following Chapter 11. 

Whenever the same series of calculations is repeated a number of times, even with different sets of data, the use of a computer should be considered. For instance, the calculations of the net present value is very straightforward. It can easily be done using tables, a calculator, and/or a slide rule. However, it can also be done on a computer, and this would relieve the engineer of the responsibility of repeatedly performing the calculations. This will give him some time to analyze and compare the results. Besides this, he can also obtain from the same data the payout period and the return on the investment. He could even combine this with the program for the rate of return, and obtain all the major economic indicators for the same effort previously required to obtain any single one. 

Kremer16 then went on to make a precise estimate of the social value of an innovation or surplus under a situation of competition and under a monopoly. Thus, for example, for a price five times higher than the price fixed according to the marginal price, we detect a static distortion of 1.5, that is, the social rate of return of an innovation in a situation with marginal cost prices will be 1.5 times the return on the investment under monopoly prices. In this situation the social value of an innovation in a competitive environment would be 9.35 times the social value in a monopoly, that is, when there is no welfare loss. Kremer thus provides an estimate of welfare loss from a more thorough analytical perspective, and shows that it can be sizeable. 

If products under patent are exempted from the RP system, do the negative effects on the R D of the pharmaceutical sector disappear The exclusion of medicines with a current patent may reduce the economic erosion of the rights granted by the patent, and also the disincentive to invest in R D. But negative effects on innovation are not totally eradicated, as (a) RP increases the uncertainty on the expected return on the investment, (b) incentives for innovation will be damaged due to the fact that the R D process is a joint production process, since the overall return is reduced when RP is applied, and (c) the exclusion of patented products has proved to be only partial in some cases (for example, not excluding drags under a process patent). 

The Hydrocarbon Processing Industry (HPI), has traditionally been reluctant to invest capital where an immediate direct return on the investment to the company is not obvious, as would any business enterprise. Additionally financial fire losses in the petroleum and related industries were relatively small up to about the 1950 s. This was due to the small size of facilities and the relatively low value of oil and gas to the volume of production. Until 1950, a fire or explosion loss of more than 5 million U. S. Dollars had not occurred in the refining industry in the USA. Also in this period, the capital intensive offshore oil exploration and production industry were only just beginning. The use of gas was also limited early in the century. Consequentially its value was also very low. Typically production gas was immediately flared or the well was capped and considered as an uneconomical reservoir. Since gas development was limited, large vapor explosions were relatively rare and catastrophic destruction from petroleum incidents was essentially unheard of. The outlays for petroleum industry safety features were traditionally the absolute minimum required by governmental regulations. The development of loss prevention philosophies and practices were therefore not effectively developed within the industry. 

It is common knowledge that a blow (impact) can initiate explosion in certain substances usually referred to as explosives. Aside from superficial statements, such as the one above, the subject of impact initiation (also called impact sensitivity) of explosives has been shrouded in myth, confusion misinformation. Until recently, more time money has been invested, with less return on the investment, in studying impact sensitivity than any other aspects of explosion sensitivity. This was most aptly stated in the following quotation (Ref 4)... 

How, then, should a target figure for the return on the investment be established The simplest is to look at current interest rates - but these... 

Return on investment. How quickly will there be a return on the investment, what will be the pay back period ... 

The preliminary economics for the process have been obtained by first developing a capital cost for the process equipment and then estimating the operating cost to define the needed sales price of the metal hydride for the required after tax return on the investment. 

An investigation of a proposed investment has been made. The following result has been presented to management The minimum payout period based on capital recovery using a minimum annual return of 10 percent as a fictitious expense is 10 years annual depreciation costs amount to 8 percent of the total investment. Using this information, determine the standard rate of return on the investment. 

An investment of 1,000,000 will give annual returns as shown in the following over a life of five years. Assume straight-line depreciation, negligible salvage value, and 34 percent income taxes. What is the discounted-cash-flow rate of return on the investment (Profitability Index) before and after taxes with (a) No inflation and annual returns of 300,000 each year (i.e., cash flow to the company of 300,000) before taxes ... 

For return on investment (j) before taxes, the actual annual return based on zero-time dollars is 300,000 so the return on the investment is exactly the same as for the case of no inflation, and i = 0.152 or 15.2% return. 

Thus, as would be expected because profits for the inflation case increased at the same rate as the inflation, the before-tax return on the investment was the same for the cases with or without inflation at 15.2%. However, due to the depreciation costs remaining constant in the case of inflation, the after-tax return on the investment was different for the no-inflation case (10.33%) and the inflation case (8.59%). 

You are to prepare a complete preliminary-estimate design for a new plant for the solvent rendering of raw tissues by an extraction process. Some pieces of equipment are now on hand which we believe can be used in the new plant. Please submit a complete report on the design which you feel will be most favorable for our company. We are particularly interested in total investment, yearly profit before taxes, and the probable percent return on the investment. We shall be interested in the reason for your particular choice of solvent. The design report should also include the number of operators necessary and the approximate operating procedure. 

---