# bingoaloha| What are the return on investment and internal rate of return? Understand how to calculate return on investment and internal rate of return

The calculation method of Investment rate of return and Internal rate of return

In the field of investment**Bingoaloha**It is important to understand how to calculate the rate of return on investment (ROI) and internal rate of return (IRR). These two indicators are an important basis for measuring the profitability of investment projects and can help investors to make wise investment decisions. This article will describe in detail how to calculate the rate of return on investment and internal rate of return, so that investors can better understand the use of these two indicators.

Return on Investment (ROI)

Return on investment (Return on Investment, referred to as ROI) is an index to measure the relationship between investment income and investment cost. The calculation formula is as follows:

ROI = (return on investment-investment cost) / investment cost * 100%

Through this formula, investors can clearly understand the percentage of the return on investment relative to the cost. For example, if an investor invests 100000 yuan in a project and finally gains 120000 yuan, then the ROI is:

ROI = (120000-100000 yuan) / 100000 yuan * 100% = 20%

This means that investors have received a 20% return on the project, which can be used to assess the effectiveness of the investment.

Internal rate of return (IRR)

Internal rate of return (Internal Rate of Return, referred to as IRR) is a more complex financial indicator used to evaluate the profitability of investment projects. It refers to the discount rate that makes the net present value (NPV) of the project equal to zero. In other words, IRR is the rate of return that investors expect from an investment project without considering the value of time. Calculating IRR requires the help of an iterative method or a financial calculator. Here is a simple example:

Suppose an investor plans to carry out a three-year project with an investment cost of 100000 yuan. The expected benefits of the project are as follows:

Expected income for the year (ten thousand yuan) 1 3 2 4 3 5In order to calculate IRR**Bingoaloha**We need to find a discount rate so that the net present value (NPV) of the project is zero. In this example, we can find that the IRR is about 18 by trying different discount rates.**Bingoaloha**.08%. This means that investors expect a return of 18% from the project, regardless of the value of time.**Bingoaloha**.08%.

To sum up, the rate of return on investment and internal rate of return are two important indicators to measure the profitability of investment projects. By mastering the calculation method of these two indicators, investors can better evaluate the value of investment projects and make wise investment decisions. It should be noted that these two indicators have their own advantages and disadvantages, and investors should use them comprehensively in practice in order to obtain a more comprehensive investment analysis.

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