Evaluating capital investments involves several financial metrics and analyses to determine their viability and potential return on investment (ROI). Key methods include:
Net Present Value (NPV): This metric calculates the present value of future cash flows generated by the investment, minus the initial investment cost. Internal Rate of Return (IRR): This is the discount rate that makes the NPV of an investment zero, effectively measuring the profitability of the investment. Payback Period: This indicates the time required to recover the initial investment from the cash flows generated by the project. Cost-Benefit Analysis: This involves comparing the costs and benefits of the investment to determine its overall value.