good thing i tagged this because i had already forgotten!
i will try to be as brief and concise as i can; if i am unclear or you just want more info please let me know!
this calculator is intended to be a mini snapshot for a corporate finance decision. you can use it for personal stuff, but you have to understand some of the terms that are there.
ROI is return on investment and is often used in conjunction with IRR (internal rate of return). this calculator tries to simplify the choices that are made daily in a corporate environment. companies face many demands on their funding; they have to find a way to measure the best investment.
the bank interest charge is the amount of money that the company would pay to the bank on their 5% operating line over 22 years. those inputs are at the top of the chart.
the corporate ROI line is the earnings that the company expects from its investments; 80 percent is very high. specifically, this is what the company expects on this or other investments on the principal plus interest; so it would expect to earn this amount on any other projects or investments. investments here could be anything, equipment, training, or a money market instrument. in other words, what else could it be doing with the funding required to buy this piece of equipment?
how do they calculate each? the bank interest is 5% on the $10 borrow, compounded annually, semi annually, monthly, or even daily! likely semi annually in canada.
the future value of money is calculated exactly the same, except in reverse. it would be 10 dollars plus interest payments, at your ROI and compounded likely annually.
hope that this makes sense!
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Last edited by McG; 11-21-2010 at 10:44 AM.
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