Author(s)

Jiayi Lu, Shuo Yin

Corresponding Author

Jiayi Lu

ABSTRACT

With the unprecedented boom in business in recent years, investment choices have become the norm for many companies. Thus, how to select projects for investment has become an important issue for companies to consider. We have compared the two most common methods used in the market to calculate future earnings, the net present value method and the rate of return method. Most companies, when faced with a new project, choose to use these two methods to judge the future income, as well as the feasibility of the project. In this paper, the two methods are adopted for certain projects. The results of the calculations for using different calculation methods were analyzed and showed that both methods are feasible in investment income forecasting. When the forecasted return is lower than the market return, no investment is made. The two methods, NPV, and rate of return, can be referred to more often in future investment decisions.

KEYWORDS

Net Present Value Method, Internal Rate of Return Method, Investment