Return on investment and internal rate of return**Pokertabletop**Calculation method of

In the field of investment, knowing how to calculate the rate of return on investment (ROI) and internal rate of return (IRR) is very important to assess the profitability and risk of investment projects. In this paper, the calculation formulas and usage of these two indexes will be introduced in detail.

1. The formula for calculating the return on investment (ROI)

The rate of return on investment is the ratio of the return on investment to the cost of investment. The calculation formula is as follows:

Return on investment (ROI) calculation formula investment income investment costThe specific calculation method is: return on investment = (return on investment-investment cost) / investment cost * 100%.

II. Internal rate of return (IRR) calculation method

The internal rate of return is the discount rate that makes the net present value (NPV) of the investment project zero. In other words, it represents the average annualized rate of return on investment projects. To calculate IRR, you need to determine the cash inflow and outflow of the project. Here are the steps for calculating IRR:

Determine the initial investment cost of the project (that is, cash outflow) and cash inflows for future periods. Set the discount rate (the candidate value of the internal rate of return). Calculate the net present value (NPV), which is the discounted value of future cash inflows minus the initial investment cost. Adjust the discount rate until NPV approaches zero. The discount rate at this time is the internal rate of return (IRR).III. Actual case analysis

Assuming that a project requires an investment of 1 million yuan, the cash inflows in the next three years are expected to be 500000 yuan, 600000 yuan and 700000 yuan respectively. We can calculate the return on investment and internal rate of return of the project by the following methods.

one**Pokertabletop**. Calculate return on investment (ROI)

Return on investment = 50 + 60 + 70 = 1.8 million yuan

Return on investment = (180-100) / 100 * 100% = 80%

two。 Calculate the internal rate of return (IRR)

We can find the discount rate that makes NPV close to zero by trying different discount rates.

Discount rate Cash inflow net present value (NPV) 10% 50 / (1 + 10%) + 60 / (1 + 10%) ^ 2 + 70 / (1 + 10%) ^ 3 about-70700 20% 50 / (1 + 20%) + 60 / (1 + 20%) ^ 2 + 70 / (1 + 20%) ^ 3 about 119500 yuanBy adjusting the discount rate, we find that when the discount rate is about 15%, NPV is close to zero. As a result, the internal rate of return of the investment project is about 15%.

Through the calculation of the rate of return on investment and internal rate of return, we can more comprehensively evaluate the profitability and risk of investment projects. Investors should combine these two indicators, as well as other financial analysis methods, to make more informed investment decisions.