PGMP · Question #547
The program selection committee presents several programs for approval: Program A is estimated to cost US$250,000, and has an annual cash inflow of US$75,000. Program B is estimated to cost US$150,000
The correct answer is C. Program C. Three-year ROI is calculated as: (Total 3-Year Inflow − Initial Cost) ÷ Initial Cost × 100. Program A: ($75K × 3 = $225K − $250K) ÷ $250K = −10% ROI. Program B: ($55K × 3 = $165K − $150K) ÷ $150K = +10% ROI. Program C: ($45K × 3 = $135K − $100K) ÷ $100K = +35% ROI. Program D: ($3
Question
The program selection committee presents several programs for approval:
Program A is estimated to cost US$250,000, and has an annual cash inflow of US$75,000. Program B is estimated to cost US$150,000, and has an annual cash inflow of US$55,000. Program C is estimated to cost US$100,000, and has an annual cash inflow of US$45,000. Program D is estimated to cost US$200,000, and has an annual cash inflow of US$35,000. Which program was selected based solely on a three-year return on investment?
Options
- AProgram A
- BProgram B
- CProgram C
- DProgram D
How the community answered
(43 responses)- A9% (4)
- B5% (2)
- C84% (36)
- D2% (1)
Explanation
Three-year ROI is calculated as: (Total 3-Year Inflow − Initial Cost) ÷ Initial Cost × 100. Program A: ($75K × 3 = $225K − $250K) ÷ $250K = −10% ROI. Program B: ($55K × 3 = $165K − $150K) ÷ $150K = +10% ROI. Program C: ($45K × 3 = $135K − $100K) ÷ $100K = +35% ROI. Program D: ($35K × 3 = $105K − $200K) ÷ $200K = −47.5% ROI. Program C has the highest three-year return on investment at 35%, making it the most financially attractive option when evaluated solely on this metric. Programs A and D both produce negative ROI over three years, disqualifying them. Program B is profitable but yields only 10% ROI, significantly lower than Program C.
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