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There are a variety of ways to calculate a return on investment (ROI) — netpresentvalue , internal rate of return , breakeven — but the simplest is paybackperiod. What is paybackperiod? ” The shorter the paybackperiod, the better. A Refresher on NetPresentValue.
Business students have traditionally considered netpresentvalue, paybackperiod, and hurdle rates as necessary tools to determine which project to select. This notion, that risk is a desirable feature, can seem like sacrilege to anyone who’s taken an introductory finance course.
Despite a one-year paybackperiod and a highly positive netpresentvalue (NPV) from this investment, the department will often reject the attractive opportunity. Consider the opportunity to raise spending in Year 1 by $100,000 to acquire technology that would decrease spending each year thereafter by $100,000.
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