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Finance Basics (HBR 20-Minute Manager Series) by Harvard Business Review

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Calculating Return on Investment

Imagine that Amalgamated Hat Rack is considering two investment options: buying a new piece of machinery and creating a new product line. The new machine is a plastic extruder with a price tag of $100,000. Amalgamated hopes it will save time and money over the long term, and that it will be safer than the current equipment. The second possibility, launching a line of coatracks, will require a $250,000 investment in design, production equipment, and marketing.

How will Amalgamated decide whether these options make economic sense? And if it can afford only one of them, how will it decide which to choose?

By figuring out the return on investment, or ROI. This means evaluating how much money the investment will generate ...

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