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Return on Investment“AN INVESTMENT IN KNOWLEDGE PAYS THE BEST INTEREST.”
BENJAMIN FRANKLIN
Return on Investment
The amount of gain/profit (or benefit), from an investment made, usually expressed as a percentage of the original total cost invested
Abbreviation: ROI
Watch the Video for several examples of ROI
ROI- Calculation (Formula)To calculate return on investment, the benefits (or returns) of an investment are divided by the costs of the investment.
The result can be expressed as a percentage or a ratio. The higher the percentage the better the return.
(Gains from Investment – Cost of Investment)
÷ Cost of Investment__________
= Return on Investment (ROI)
Meet Shari.
Shari has been working at a local restaurant.Her wage is currently $9.00 an hour.She works a full time schedule of 40 hours per week ,or $ 18,720 a year.
Shari has been thinking about getting a new career.She is interested in becoming a Cosmetologist
Shari took a tour of a Cosmetology school.The school was amazing!
Going to Cosmetology school will require Shari to take out a student loan for the tuitionand some living expenses during
the year it takes to complete. A total of $22,000
Shari’s employer hasagreed to adjust her schedule
to part time-,or 20 hours per week,causing loss of wages of $9,360 while she’s in school.
Transportation to school will cost $25 a week and childcare will cost $150 a week.
Investment in a Career:Cosmetology
Monetary investments: Student loan- tuition, living expenses, and interest
Lack of wages
Transportation
childcare
Cost of Investment- Cosmetology SchoolStudent Loan $22,000
◦ Includes tuition, living expense and interest
Lost Wages- 9,360◦ FT to Part Time- 12 months
Transportation 1,300◦ 12 months
Childcare 7,800o 12 months __________
Total Investment $40,460
www.bls.govAnnual Salary
Salary ComparisonCosmetologist salary based on May 2013 data fromthe Bureau of Labor Statistics: http://www.bls.gov
based on a starting wage of $9 per hourwith a 3% increase annually
Student loan term- 10 Years
Gains from Investment
Total Gains From
Investment
ROI- Calculation (Formula)
Gains from Investment $ 110,488
Cost of Investment - 40,460
$70,028
Cost of Investment ÷ 40,460
Return on Investment (ROI) 173%
Shari did her research:
Cost of Investment
Gains from Investment
Return on Investment- 173%
Will knowing the ROI help Shari make a decision?