Formulas for investment analysis

You can use several formulas for investment analysis. The formulas are to be used for the standard investment analysis model, which has a value stream, Revenue (R), and two cost streams, Development Cost (D) and Maintenance Cost (M).
Net Present Value (NPV)
The Net Present Value is the sum of discounted value streams minus the sum of discounted cost streams.
NPV formula
Internal Rate of Return (IRR)
The Internal Rate of Return is the rate for which the NPV equals zero. For the NPV in a standard investment analysis model, the IRR is calculated by using this formula to find r:
IRR formula
Note: The formula does not have a closed form solution. The value of r is approximated by using calculations.
Return on Investment (ROI)
The Return on Investment is the gain from an investment minus the cost of the investment, divided by the cost of the investment. This formula takes the discounting into account, as does ROI in investment analysis model. To calculate the ROI from the start to finish of the project, use this formula:
ROI formula
Payback period
The Payback period is the period in which the benefits first exceed the costs for the project. For example, if j time periods elapse before the sum of benefits exceed the sum of costs, the payback period is j. When the payback period is computed, discounting is also included in the calculation.
Payback period formula

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