If you took $20 million as debt to fund a $200 million project. Assuming 10% interest on the debt and returns of $500 million in 5 years. What is your ROI?

Please explain how it comes 161%.

Please explain how it comes 161%.

May 18 2014 11:59 AM

SOLUTION - In this case you should subtract the amount of debt from the total investment needed. Then you should pay back the bank loan and interest from the returns and calculate the ROI of the equity invested (minus the debt) to the total $500 million of the project.

After 5 years, with 10% interest on 20 million, you owe 30 million to bank.

subtract this from total return of 500 million to get actual return of 470 million.

Initial investment was 180 millions(200-20)

So total profit = 470 - 180 = 290 millions = 290/180 = 161%

161 is %age profit and ROI is 261% which is not in options

Jun 22 2014 11:34 AM
After 5 years, with 10% interest on 20 million, you owe 30 million to bank.

subtract this from total return of 500 million to get actual return of 470 million.

Initial investment was 180 millions(200-20)

So total profit = 470 - 180 = 290 millions = 290/180 = 161%

161 is %age profit and ROI is 261% which is not in options