401 Appendix C - Calculating NPV, Payback Period, and ROI

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Net Present Value

method by which all benefits and costs are calculated in terms of todays dollars and are then combined to give a net value

discount rate

a rate used to equate future values to present values ex. $94.34 will be worth $100 in one year with discount rate of 6%

Discount Factor

the accumulation of yearly discounts based on the discount rate Calculated using F=1/(1+I)^n

Present Value

calculated: present Value= amount received in future/(1+i)^(number of years)

Payback period

the time it takes for you to payback an investment

fraction of a year

calculation: (| beginning year amount|/(year-end amount+| beginning year amount|))

ROI

ROI=(est. time period benefits-est. time period cost)/est. time period costs

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