Using the ROI formula ROI = (increase in annual net income × years of expected benefit − cost of education) / cost of education, calculate ROI when annual net income increases by 4,000, expected benefit years 8, and cost of education 20,000.

Using the ROI formula ROI = (increase in annual net income × years of expected benefit − cost of education) / cost of education, calculate ROI when annual net income increases by 4,000, expected benefit years 8, and cost of education 20,000.

• A. 0.60
• B. 0.40
• C. 0.80
• D. 1.00

Answer: (A)

The ROI concept here is to measure how much net gain you get from an education investment relative to what you spent. First, find the total gain from the increased income over the benefit period: 4,000 per year for 8 years gives 4,000 × 8 = 32,000. Subtract the education cost to get the net gain: 32,000 − 20,000 = 12,000. Then divide that net gain by the cost to express the return as a ratio: 12,000 ÷ 20,000 = 0.60. So the ROI is 0.60, or 60%. This means the education investment yields a 60% return over the 8-year period.

The ROI concept here is to measure how much net gain you get from an education investment relative to what you spent. First, find the total gain from the increased income over the benefit period: 4,000 per year for 8 years gives 4,000 × 8 = 32,000. Subtract the education cost to get the net gain: 32,000 − 20,000 = 12,000. Then divide that net gain by the cost to express the return as a ratio: 12,000 ÷ 20,000 = 0.60. So the ROI is 0.60, or 60%. This means the education investment yields a 60% return over the 8-year period.