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ROI Analysis

This document presents a capital budgeting analysis for a proposed project with the goals of increasing production capacity, improving cycle times, reducing costs from accidents and defects, and improving quality. It estimates that the project will generate $1.575 million in total annual benefits in year 1, growing to $2.425 million by year 3. The total costs are estimated to be $1.65 million in year 0. The net present value is estimated to be $2.223 million and the return on investment is projected to be 66% in year 1, growing to 215% by year 3, with a payback period of 1.24 years.

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1K views

ROI Analysis

This document presents a capital budgeting analysis for a proposed project with the goals of increasing production capacity, improving cycle times, reducing costs from accidents and defects, and improving quality. It estimates that the project will generate $1.575 million in total annual benefits in year 1, growing to $2.425 million by year 3. The total costs are estimated to be $1.65 million in year 0. The net present value is estimated to be $2.223 million and the return on investment is projected to be 66% in year 1, growing to 215% by year 3, with a payback period of 1.24 years.

Uploaded by

api-3809857
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as XLS, PDF, TXT or read online on Scribd
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<Company Name>

Capital budgeting—return-on-investment (ROI) analysis


<Date>

Data cell key


User data entry or item description
Formula cells: Totals are calculated and filled in automatically.

Investment overview
Project name: <Project name>
Project sponsor: <Project sponsor>
Date of request: <Date>
General description of benefits: <Description of benefits>

Cash flow and ROI statement


YEAR
BENEFIT DRIVERS
0 1 2 3
Greater margin driven by higher production capacity $500,000 $1,000,000 $1,250,000
Improved cycle time benefits:
Reduced energy cost due to less running time 125,000 125,000 125,000
Reduced labor cost due to less running time 500,000 500,000 500,000
Fewer accidents, resulting in less workers' compensation 100,000 100,000 100,000
Improved quality benefits:
Fewer defects, resulting in less rework 250,000 300,000 300,000
Fewer customer returns, resulting in less reprocessing costs 50,000 75,000 75,000
Reduced time spent handling customer complaints 50,000 75,000 75,000
<Benefit driver>
<Benefit driver>
<Benefit driver>
<Benefit driver>
Total annual benefits $1,575,000 $2,175,000 $2,425,000
Implementation filter 85% 90% 95%
Total benefits realized $1,338,750 $1,957,500 $2,303,750
Costs Year 0 Year 1 Year 2 Year 3
Total $1,650,000 $125,000 $125,000 $125,000

Benefits Year 0 Year 1 Year 2 Year 3


Annual benefit flow ($1,650,000) $1,213,750 $1,832,500 $2,178,750
Cumulative benefit flow (1,650,000) (436,250) 1,396,250 3,575,000

Discounted benefit flow Year 0 Year 1 Year 2 Year 3


Discounted costs $1,650,000 $108,696 $94,518 $82,190
Discounted benefits 0 1,164,130 1,480,151 1,514,753
Total discounted benefit flow (1,650,000) 1,055,435 1,385,633 1,432,563
Total cumulative discounted benefit flow (1,650,000) (594,565) 791,068 2,223,632

Initial investment Year 0 Year 1 Year 2 Year 3


Initial investment $1,200,000 $0 $0 $0
Implementation costs 400,000 0 0 0
Ongoing support costs 0 100,000 100,000 100,000
Training costs 50,000 25,000 25,000 25,000
Other costs 0 0 0 0
Total costs $1,650,000 $125,000 $125,000 $125,000

ROI measures
Cost of capital 15%
Net present value $2,223,632
Return on investment 66% 143% 215%
Payback (in years) 1.24

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