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    Net Profit:: Sales Operating Expenses Taxes Stock Dividends Revenue Revenue

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    Ahsan Prince
    Net profit represents the amount of revenue remaining after expenses, interest, taxes, and preferred stock dividends have been deducted. The payback period is the time required to earn back an investment from its net cash flows. Return on investment (ROI) measures the gain or loss generated by an investment relative to the amount invested, expressed as a percentage. Net present value (NPV) is the present value of an investment's expected cash inflows minus its costs, with a positive NPV suggesting a valuable investment. The internal rate of return (IRR) is the discount rate that results in a project's NPV being equal to zero.

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    Net Profit:: Sales Operating Expenses Taxes Stock Dividends Revenue Revenue

    Uploaded by

    Ahsan Prince
    33 views3 pages
    Net profit represents the amount of revenue remaining after expenses, interest, taxes, and preferred stock dividends have been deducted. The payback period is the time required to earn back an investment from its net cash flows. Return on investment (ROI) measures the gain or loss generated by an investment relative to the amount invested, expressed as a percentage. Net present value (NPV) is the present value of an investment's expected cash inflows minus its costs, with a positive NPV suggesting a valuable investment. The internal rate of return (IRR) is the discount rate that results in a project's NPV being equal to zero.

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    Net profit represents the amount of revenue remaining after expenses, interest, taxes, and preferred stock dividends have been deducted. The payback period is the time required to earn back an investment from its net cash flows. Return on investment (ROI) measures the gain or loss generated by an investment relative to the amount invested, expressed as a percentage. Net present value (NPV) is the present value of an investment's expected cash inflows minus its costs, with a positive NPV suggesting a valuable investment. The internal rate of return (IRR) is the discount rate that results in a project's NPV being equal to zero.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    33 views3 pages

    Net Profit:: Sales Operating Expenses Taxes Stock Dividends Revenue Revenue

    Uploaded by

    Ahsan Prince
    Net profit represents the amount of revenue remaining after expenses, interest, taxes, and preferred stock dividends have been deducted. The payback period is the time required to earn back an investment from its net cash flows. Return on investment (ROI) measures the gain or loss generated by an investment relative to the amount invested, expressed as a percentage. Net present value (NPV) is the present value of an investment's expected cash inflows minus its costs, with a positive NPV suggesting a valuable investment. The internal rate of return (IRR) is the discount rate that results in a project's NPV being equal to zero.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
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    of 3

    Net profit :

    Net profit represents the number of sales dollars remaining after all operating expenses,
    interest, taxes and preferred stock dividends (but not common stock dividends) have been
    deducted from a company's total revenue.

    Net Profit =Total Revenue -Total Expenses

    Payback Period:
    The payback period is the time required to earn back the amount invested in an asset from
    its net cash flows. It is a simple way to evaluate the risk associated with a proposed project.

    Payback period=Cost of investment/annual net cash flow

    Return on investment (ROI) :

    Return on investment (ROI) measures the gain or loss generated on an investment relative to the
    amount of money invested. ROI is usually expressed as a percentage and is typically used for
    personal financial decisions, to compare a company's profitability or to compare the efficiency of
    different investments.

    ROI = (Net Profit / Cost of Investment) x 100

    Net present value (NPV) :

    Net present value (NPV) is the present value of an investment's expected cash inflows minus the
    costs of acquiring the investment.

    NPV = (Cash inflows from investment) – (cash outflows or costs of investment)


    Example of Net Present Value

    To provide an example of Net Present Value, consider company Shoes For You's who is
    determining whether they should invest in a new project. Shoes for You's will expect to
    invest $500,000 for the development of their new product. The company estimates that the
    first year cash flow will be $200,000, the second year cash flow will be $300,000, and the
    third year cash flow to be $200,000. The expected return of 10% is used as the discount
    rate.
    The following table provides each year's cash flow and the present value of each cash flow.

    Year Cash Flow Present Value


    0 -$500,000 -$500,000
    1 $200,000 $181,818.18
    2 $300,000 $247,933.88
    3 $200,000 $150,262.96

    Net Present Value = $80,015.02


    The net present value of this example can be shown in the formula

    When solving for the NPV of the formula, this new project would be estimated to be a
    valuable venture.

    Internal Rate of Return (IRR):


    The Internal Rate of Return (IRR) is the discount rate that makes the net present value (NPV) of
    a project zero. In other words, it is the expected compound annual rate of return that will be
    earned on a project or investment.

    Example: instead of investing $2,000 like above, you could also invest 3 yearly sums of $1,000 to
    gain $4,000 in the 4th year ... should you do that instead?

    I did this one in a spreadsheet, and found that 10% was pretty close:
    At 10% interest rate NPV = -$3.48

    So the Internal Rate of Return is about 10%.

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