IPA FE Subject A sample Question 50
A question IPA Japan published in 基本情報技術者試験 科目A サンプル問題 問50, translated into English. ITPEC is based on the same exams.
For investment projects, when the investment effect over 5 years is evaluated by ROI (Return On Investment), which of the four projects a through d has the highest ROI? Here, the discount rate does not need to be taken into consideration.
a
b
c
d
Explanation
Project a, with an ROI of 35% — ROI relates the profit an investment earns to the amount invested.
Without discounting, add up the five years' profit, subtract the investment and divide by the investment:
Project a earns the most per unit invested. Taking ROI as total profit ÷ investment instead (1.35, 1.2, 1.2, 1.3125) ranks the projects the same way.
Answer (a)
Why not others:
- •(b) — its large early profits (105 in year 1) catch the eye, but the 240 in total is only 20% above its 200 invested
- •(c) — 360 of profit on 300 invested is also only 20%
- •(d) — the largest total profit, 525, but it needs 400 of investment, so its ROI of 31.25% stays below a's 35%
Key rule: ROI compares profit with the money invested, so the project with the largest profit is not necessarily the best; without discounting, the timing of the profits does not matter.
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This question comes from the past questions IPA Japan publishes, translated into English by ITPEC Practice. ITPEC Practice is an independent study tool and is not affiliated with IPA or ITPEC. See the original paper (PDF) or Report an issue.