Comparison between expected Internal rate of return and other Investment Indexes

In the field of investmentBlockchaingames2021Investors usually pay attention to a variety of indicators to assess the profitability and risk level of investment projects. Expected internal rate of return (Internal Rate of Return)Blockchaingames2021IRR) is a key index to measure the benefit of investment.Blockchaingames2021There are certain associations and differences with other commonly used investment indicators. This paper will deeply analyze the similarities and differences of the expected internal rate of return by comparing other investment indicators.

Expected internal rate of return (IRR)

The expected internal rate of return refers to the net present value (Net Present Value) of the project.Blockchaingames2021, NPV) is equal to zero discount rate. In other words, IRR is the annualized rate of return that investors expect from the project without considering the value of time. When the IRR is higher than the investor's cost of capital or the required minimum rate of return, the project is usually considered to have investment value.

II. Net present value (NPV)

Net present value (NPV) refers to the difference between the present value of future cash inflows and the present value of cash outflows. Compared with IRR, NPV pays more attention to the value of time and can reflect the value of the project more accurately. However, NPV may produce multiple net present values in multi-stage investment decisions, which leads to difficulties in decision-making.

Return on Investment (ROI)

The return on investment refers to the ratio of the project income to the investment cost, which is usually used to measure the investment benefit. Compared with IRR and NPV, ROI is simple to calculate and easy to understand. However, its main disadvantage is that the time distribution and scale of the cash flow of the project are ignored, which leads to the inaccurate evaluation of the value of the project.

4. Payback period (Payback Period)

The payback period refers to the time it takes for investors from the beginning of the project to recover the full cost of the investment. Projects with a shorter payback period are generally considered to be less risky. However, the payback period ignores the time value of cash flow, which may lead to an underassessment of the profitability of long-term projects.

V. Comparative analysis

In order to more intuitively show the characteristics of each investment index, the following is a simple comparison table:

To sum up, expected internal rate of return, net present value, rate of return on investment and payback period are four commonly used indicators in investment decisions. Although they have similarities and differences in some aspects, investors need to comprehensively use these indicators according to the specific situation to make more scientific and reasonable investment decisions.