Question
Cutting Edge Sensors Ltd. has taken $2.5M worth of investor stock to start a 3 year project that is estimated to earn $5M by the
Cutting Edge Sensors Ltd. has taken $2.5M worth of investor stock to start a 3 year project that is estimated to earn $5M by the end of the project ($2M at end of year 2, and $3M at the end of year 3). The yearly costs involved are $500,000 for the length of the project. Investors had the opportunity to invest in another project expected to earn 10% per year. To complicate the situation, the CEO is considering the possibility of buying infrastructure that would make in-house manufacturing of component parts normally bought from suppliers. This would increase the initial cost required to fund the project to a total of $4M (from $2.5M). This would reduce ongoing yearly costs to $150,000 (from $500,000). What is the updated ROI?
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