Blog

It is also known as the required rate of return or the minimum attractive rate of return (MARR). They both mean the lowest return an investor is willing to take on an investment, taking into account the risk and other possible opportunities.

Over time, the net cash flow of an investment project can help us put it into a category. We specifically keep track of how many times the cash flow changes from negative (money spent) to positive (money gained) or from positive to negative (money gained). We do not count times when there is no cash flow. The project’s cash flow changes more and more as these switches happen.

Considering how much money changes hands over time, the discounted payback period shows how long it will take to get the initial investment back. The present value (discounted value) of future cash flows is used to figure this out, not just the raw numbers. Inflation or deflation means that a dollar today is worth more than a dollar tomorrow. This number tells you how quickly you will get your money back.

Deflation is the opposite of inflation. In deflation, prices increase over time, making a certain amount of money less valuable.

Inflation signifies that the price of goods typically decreases over time, meaning that a fixed dollar amount acquires fewer goods as time advances.

What distinguishes the overall inflation rate from the specific inflation rate?

What is the primary commonality between the cash flow of a loan and that of a project?

What makes the general inflation rate different from the average inflation rate for certain goods?

Capital is initially allocated to anticipate future returns in lending and investment contexts. The return on a bank loan comprises the interest accrued on the loan amount and the eventual repayment of the principal. The aggregate amount is termed the loan cash flow.

The Net Present Value (NPV) method examines an investment’s costs and benefits. The present value of all the money coming in (inflows) is subtracted from the present value of all the money going out (outflows) over the project’s life. When the time value of money is considered, a positive NPV means that the project is likely to make money because the future earnings are more significant than the initial costs.