Promoting renewable energies - RETS Project

The interest rate is sought for which all annual returns
(here: costs saved annually) must be discounted, so that
the sum of these discounted payments equals the
amount invested, or: -€8,000 (investment) + discounted
returns = €0. If this interest rate is significantly higher
than the interest rate at which the money can be
borrowed (outside capital) or invested (company capital),
the investment is profitable. In the above example, the
internal rate of return is 21.4%.
Example investment
Amount to be invested (expenditure):
Present value (profitability):
The present value is the current gain (loss) of an
investment. This is also clarified best by means of an
example. In contrast to the internal rate of return, here
the interest rate is specified. In this respect, the internal
rate of return is a special case of the present value
calculation, for which the present value is set at zero and
the equation is then solved for the (sought) interest rate.
-€8,000
Annual costs saved3: €2,000
Useful life:
10 years
Interest rate: 10%
Investition
eingesparte Kosten
2007 2008 2009 … 2017
- 8.000 € 2.000 € 2.000 € 2.000 € 2.000 €
1.818 €
1.653 €
…
771 €
4.289 €
Translations: Investition = Investment; eingesparte Kosten = “Costs saved”
If one discounts the repayments of the above investment
at 10 % and then subtracts from these repayments the
invested sum of €8,000, the investor retains €4,289 at the
time of the investment (2007), which he can record as
profit, provided the repayments occur as planned.
You can find the tool for investment calculations
here:
http://www.retsproject.eu/UserFiles/File/tools/Tool_Irees_Investitionsber
echnung_Kowener.xls
RETS Compendium – © 2012 RETS Consortium
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