What are ROI, NVP, and ROV?
Calculating Return-on-Investment (ROI) is a practice of modern management used in the analysis of many business strategies and operations. Perhaps the most popular application of this tool is in the analysis of purchase decisions for investments in capital equipment or technology. ROI is simply a measure of benefit versus cost. Expressed as a percentage, ROI is determined by total net present benefits divided by total net present costs. Benefits and costs are converted into present values since they usually accrue over extended periods of time. The basic rule of thumb is that projects with an ROI of less than 100 percent should not be undertaken The Net Present Value method (NPV) is a traditional valuation method used in the analysis of many business strategies and operations, whereby the following steps are undertaken: 1. Calculation of expected free cash flows (FCF) (often per year) that result out of the investment 2. Subtract /discount for the cost of capital (an interest rate to a
