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| Scenario | Upfront cost | Annual benefits | Annual operating costs | Life (years) | Discount rate | ROI (undiscounted) |
|---|---|---|---|---|---|---|
| Process automation | $60,000 | $22,000 | $4,000 | 5 | 10% | 43.33% |
| Energy upgrade | $45,000 | $15,000 | $2,500 | 6 | 9% | 70.00% |
| Software consolidation | $35,000 | $12,000 | $3,000 | 4 | 12% | 20.00% |
Total ROI summarizes value created versus value consumed. This calculator reports undiscounted ROI and discounted ROI so you can compare projects with different timelines. It also shows NPV, payback period, and IRR, which are common screening metrics. Use the chart to spot uneven years and volatility quickly. When discounted ROI is positive and NPV is above zero, the project is generally creating value at your discount rate.
Start with year‑1 annual benefits and annual operating costs, then apply optional growth and inflation. The tool calculates net cash flow each year as benefits minus operating costs, optionally after tax. Salvage value is added to the final year to reflect resale value or remaining benefit. This structure matches how capital requests and improvement proposals are modeled.
Discounting converts future amounts into present values using PV = Amount ÷ (1 + r)^t. A higher discount rate reduces the present value of later cash flows, which can lower discounted ROI and NPV even when undiscounted ROI looks strong. This is why late savings often matter less than early savings. For long‑lived projects, small changes in r can move the decision, so using a rate aligned with risk matters.
Payback shows how quickly cumulative net cash flow recovers the upfront cost, but it ignores cash flows after breakeven and ignores time value unless discounted. IRR estimates the rate where NPV becomes zero; it helps ranking, yet it can mislead with non‑standard cash flows. Pair these metrics with NPV for stronger decisions.
Before approval, test realistic ranges for benefits, operating costs, and growth. A 10% drop in annual benefits or a 10% rise in operating costs can shift ROI and push payback beyond the project life. Try multiple discount rates to see exposure. Export CSV or PDF to document assumptions and communicate results clearly.
Use a rate that reflects your cost of capital and project risk. For stable savings projects, many teams use a corporate hurdle rate. For higher uncertainty, test several higher rates to see how sensitive NPV and discounted ROI become.
Standard ROI uses totals without timing. Discounted ROI converts each year’s benefits and costs into present values before computing ROI, so later cash flows contribute less when the discount rate is positive.
After-tax mode applies the tax rate to net annual benefits (benefits minus operating costs). It is a simplified approach and does not model depreciation, tax credits, or loss carryforwards.
A negative NPV means discounted net cash flows do not fully recover the upfront cost at your chosen discount rate. The project may still be strategic, but financially it underperforms that required return.
IRR can fail when cash flows do not cross from negative to positive in a typical way, or when there are multiple sign changes. In those cases, rely more on NPV and discounted ROI.
Use discounted ROI and NPV at the same discount rate, and review payback for liquidity needs. If lifespans differ greatly, consider running an equivalent period analysis or testing extension scenarios.
Important Note: All the Calculators listed in this site are for educational purpose only and we do not guarentee the accuracy of results. Please do consult with other sources as well.