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This chapter is from the book

Summary of the Terms

Briefly, the terms introduced so far can be summarized as follows:

  • Return on investment: The amount of undiscounted cash (profit) returned by the project over the lifecycle, divided by the undiscounted cash (investment) used to fund the project over the lifecycle, expressed as a percentage.

  • Self-funding point: The number of time periods until the business no longer needs to inject cash into the project to sustain it.

  • Present value: The value of future cash converted to the present time.

  • Discounted cash flow: The cash flow with PV corrections applied to each period.

  • Net present value: The sum of the DCF.

  • Breakeven time: The time until the NPV of the project becomes positive (i.e., the point at which the project is making real money).

  • Internal rate of return: The interest rate at which the NPV becomes zero.

Now let's see how this all works in practice.

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