In the ROI example, what is the initial investment amount?

In the ROI example, what is the initial investment amount?

• A. -1,000,000
• B. -2,000,000
• C. -3,000,000
• D. -4,000,000

Answer: (B)

In ROI analysis, the initial outlay is treated as a negative cash flow—the money that leaves the company at the start of the project. The scenario uses two million dollars as the upfront cost, so the initial investment amount is -2,000,000. The negative sign simply reflects an outflow; the later cash inflows (positive values) are what's earned back and drive the return percentage. If the upfront cost were different, the ROI would change accordingly, because the denominator in the ROI calculation is the amount invested up front.

In ROI analysis, the initial outlay is treated as a negative cash flow—the money that leaves the company at the start of the project. The scenario uses two million dollars as the upfront cost, so the initial investment amount is -2,000,000. The negative sign simply reflects an outflow; the later cash inflows (positive values) are what's earned back and drive the return percentage. If the upfront cost were different, the ROI would change accordingly, because the denominator in the ROI calculation is the amount invested up front.