Simple NPV & ROI calculation (Example 001)
January 19, 2010
Case: A company invests $15000 and receives a $11000 cash benefit at the end of the first year and a $12100 cash benefit at the end of the second year. (Assume Cost of Money = 10%)
Calculation:
| t=0 | t=1 | t=2 | |
|---|---|---|---|
| Costs | |||
| Onetime investment | (15000) | ||
| Benefits | |||
| Cash | 11000 | 12100 | |
| F | (15000) | 11000 | 12100 |
| P | (15000) | 10000 | 10000 |
| NPV | 20000 – 15000 = 5000 | ||
| ROI | 5000/15000 = 33.33% |
NPV = S P = 10000 + 10000 – 15000 = 5000
ROI = NPV/Initial investment = 5000/15000 = 33.33%
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