Economics, Econometrics and Finance
2 years ago

Net present value determines investment success, revolutionizing financial decision-making.

Investment Criteria
Pierre Vernimmen, Yann Le Fur, Maurizio Dallochio, Antonio Salvi, Pascal Quiry

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The article discusses how to evaluate investments using net present value (NPV) and internal rate of return (IRR). NPV measures the value created by an investment, while IRR is the rate of return. Three types of cash flow are considered: operating, investment, and extraordinary. The payback period is the time to recover the initial investment, and return on capital employed (ROCE) shows the increase in profit generated.