1 – Calculating the Break Even point for a company… Assume the company spends $250,000 in early 2016 for Plant Improvements. If they expect to get an additional $50,000 increase in Net Income from this investment each year starting at the end of 2018 at what point would they break even on their investment for plant improvements – provide the year? (note – this is 50,000 per year not 50,000 then 100,000 etc.)
2 – Using the same information for exercise 1 and assuming we are doing a long range forecast what would the Return-On-Investment be at the end of 2023? (show the number as a %)
Using the same information for exercise 1 and assuming we are doing a long range forecast what would the Return-On-Investment be at the end of 2023? (show the number as a %)
answer :
We have been provided with the information that,
company spends $250,000 in early 2016 for Plant Improvements.
they expect to get an additional $50,000 increase in Net Income from this investment each year starting at the end of 2018
so investment and cash inflow are as under
Year
Cash
Flow
Incremental
Cash Flow
2016
-250,000
-250,000
2017
0
-250,000
2018
50,000
-200,000
2019
50,000
-150,000
2020
50,000
-100,000
2021
50,000
-50,000
2022
50,000
0
2023
50,000
50,000
From the above calculation we can see that Break Even year is year 2022
2
Using the same information for exercise 1 and assuming we are doing a long range forecast what would the Return-On-Investment be at the end of 2023? (show the number as a %)
Return on Investment = Increase in net income / Investment
=50,000 / 250,000
=0.20 or 20%
