Just want to make sure I’m doing this calculation correctly. Trying to find a simple ROI on some assets we acquired over the years. Calculation ignores TVM and is very simplified. ROI: Take Expected Sales Price Plus: Sum of Yearly Cash Flow Generated Minus: Total Acquisition Price Minus: Capital Expenditures = Expected Gain on Sale ROI = Expected Gain on Sale / Total Acquisition Price + Capital Expenditures Is this correct? Any help would be appreciated, thanks.
I reckon that you have to include cash flow generated from the investment as well. So ROI= CF+Expected Gain on Sale/ T.Acq. Price+ Capex. Cheers Sumo
I included it. Thanks for reaffirming my initial thoughts. /kcin
id model it all out, NPV, IRR, and toss in a graph and some data tables to capture the granularity of what happens when you input different WACCs. Def need to get those after tax cash flows in there
Who is it that is asking for ROI without considering the TVM? Basically, you want to figure out what the NPV of your proposed investment is, or at least the IRR. NPV is a better methodology because your cash flows and your capex expenses may be timed in such a way that makes IRR unreliable (there are ways to protect against that, but I wont go into them here). As long as you are considering the TVM of cash inflows and outflows, it looks like your method is sound. The only real justification for not using TVM is if the project is extremely short so that the effects of discounting are negligible: projects less than one accounting period long.