Lingo Explained : ROI, NPV, IRR

When talking about projects, you often see the following terms popping up ; ROI, NPV & IRR. Yet what do they mean?

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ROI

  • Abbreviation : Return On Investment
  • In Short : The ROI will give you an indication how fast you will have a return on your investment. It’s mostly expressed in a period of years, when calculating with costs related to a year.
  • Wikipedia : http://en.wikipedia.org/wiki/Return_on_investment
  • Formula :

    return on investment = (gain from investment – cost of investment) / cost of investment

  • Video : Youtube

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NPV

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IRR

  • Abbreviation : Internal Rate of Return
  • In Short : The IRR will indicate the “interest” you get from an investement. It’s often used as a metric to see if money shouldn’t be kept with the finance institution instead of within a (risky) investment.
  • Wikipedia : http://en.wikipedia.org/wiki/Internal_rate_of_return
  • Formula :

    Check here…

  • Video : Youtube

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And how does that related to decision making?

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