darkforestblockchaingame| Detailed explanation of the calculation method of incremental internal investment return

A detailed explanation of the calculation method of the rate of return on incremental Internal Investment

Incremental internal return on investment (Incremental Internal Rate of Return)DarkforestblockchaingameIIR) is one of the important indicators to evaluate the performance of investment projects. When making investment decisions, it is very important for investors to understand how to calculate the incremental internal return on investment. This paper will analyze the calculation method of incremental internal internal investment rate of return in detail to help investors make wise investment choices.

What is the incremental rate of return on internal investment?

Incremental internal return on investment refers to the discount rate that makes the net present value (NPV) of the investment scheme equal to zero when comparing two or more investment schemes. In short, it is a way to compare different investment schemes so that investors can choose the best investment plan.

Second, the calculation steps of the rate of return on incremental internal investment

To calculate the rate of return on incremental internal investment, you need to follow these stepsDarkforestblockchaingame:

1. Determine the net present value (NPV) of two or more investment options

First of all, the net present value of each investment scheme needs to be calculated. NPV is future cash inflows minus cash outflows divided by the discount rate. The calculation formula is as follows:

NPV = ∑ (CFt / (1 + r) t)-I where NPV: net present value CFt: cash flow of period t r: discount rate t: time (usually in years) I: initial investment

two。 Calculate the difference between the net present value of the two schemes

Calculate the difference of the net present value of the two investment schemes, namely Δ NPV. The formula is as follows:

Δ NPV = NPV scheme A-NPV scheme B

3. Calculate incremental internal return on investment (IIR)

The discount rate which makes Δ NPV equal to zero is found by iterative method or numerical approximation method. This discount rate is the incremental return on internal investment.

III. Practical application cases

Suppose investors are comparing two investment options An and B. The net present value (NPVA) of scheme An is 1 million yuan, and the net present value (NPVB) of scheme B is-500000 yuan. First of all, the difference of net present value Δ NPV = 100-(- 50) = 1.5 million yuan is calculated. Next, the discount rate that makes Δ NPV equal to zero is found by iterative method or numerical approximation method. Assuming 12%, the incremental internal return on investment (IIR) is 12%.

Through the above calculation methods, investors can more accurately evaluate the performance of different investment schemes, so as to make more informed investment decisions.