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

The Bureau of Labor statistic’s most recent data ( May 2013) shows a median salary range of $23,140 a year with

75% of Cosmetologist’s making $31,110 a year and 90% making $44,220 a year .

www.bls.gov

Gains from Investment

• Based on the student loan term of 10 years.

• Cosmetologist salary based on May 2013 data fromthe Bureau of Labor Statistics: http://www.bls.gov

• Current salary based on a starting wage of $9 per hourwith a 3% increase annually

Total Gain from Investment -$110,488

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 (ROI)- 173%

Will knowing the ROI help Shari make a decision?