If an investor buys a hotel for $5,000,000 with a $1,000,000 down payment and a $4,000,000 mortgage, and has a projected annual Cash Flow of $90,000, what is the Return on Investment?

To determine the Return on Investment (ROI) for the investor in this scenario, it is essential to understand the formula for ROI, which is calculated as follows:

[

ROI = \left( \frac{\text{Annual Cash Flow}}{\text{Initial Investment}} \right) \times 100

]

In this case, the investor has made an initial investment of $1,000,000, which is the down payment on the hotel purchase. The projected annual cash flow from the investment is $90,000.

Substituting these values into the ROI formula:

[

ROI = \left( \frac{90,000}{1,000,000} \right) \times 100 = 9%

]

Thus, the investor's ROI is 9%, indicating that for every dollar invested, the investor earns a return of 9 cents annually. This calculation demonstrates the profitability of the investment solely from the perspective of the cash flow in relation to the initial cash outlay, which is critical for evaluating the effectiveness of the investment.

In the context of other potential options, while they may represent different percentages, only the calculated ROI of 9% reflects the relationship between the annual cash flow and the initial investment