Question

A new network's hardware has a usable life of 4 years. It costs $125,000 but will save $25,000 a year in reduced maintenance costs.

What is the return on investment?

Answer 1

The return on investment for the new network hardware, given its cost of $125,000 and annual savings of $25,000 over 4 years, is -20%, indicating a negative return where costs exceed savings.

Step-by-step explanation:

To calculate the return on investment (ROI) for the new network hardware, we consider the initial cost and the annual savings. The network hardware costs $125,000, and the annual savings from reduced maintenance costs amount to $25,000 per year. Over the usable life of 4 years, the total savings would be $25,000 x 4 = $100,000. The ROI is calculated as (Total Returns - Initial Cost) / Initial Cost. Therefore, ROI = ($100,000 - $125,000) / $125,000 = -$25,000 / $125,000 = -0.20 or -20%. This indicates a negative return on investment over the 4-year period, meaning the costs outweigh the returns.