Weigh a project cost against the benefit it returns, with payback period and a simple net present value at your discount rate.
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ROI = (total benefit - cost) / cost. Payback = cost / annual benefit. NPV discounts each year of benefit back to today at your rate and subtracts the cost, so a positive NPV means the project beats simply holding the money.
ROI is easier to communicate; NPV is harder to fool. ROI ignores when the money arrives, so a project returning everything in year five looks identical to one returning it next quarter. NPV prices that difference.
Commonly your cost of capital, or the return you would get from the next best use of the money. Small businesses often use 8 to 12 percent. The rate matters most for long benefit periods.
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