Return on Investment (ROI) & Internal Rate of Return (IRR)
Exploring Your Investment Options:
When weighing different investment options to meet your financial goals, it is important to get an understanding of your potential returns. Valencia Energy Power Plants have an estimated ROI of less than five years at .15 Cents per kWh.
There are different methods investors can use to calculate the potential and actual returns of their investment. Two ways that come up often are “return on investment” (ROI) and “internal rate of return” (IRR).
Return on Investment:
Return on investment or “ROI” is a metric that is most often used in stock portfolios and refers to a percentage increase or decrease in a cash investment over some time.
Internal Rate of Return:
IRR is harder to calculate than the return on investment, but IRR has the advantage of automatically accounting for time differences between investments. This can make it easier to compare asset portfolios and choose the one that has the potential to grow your money the fastest. Usually, IRR expressed as an annualized rate of return—the average percentage by which any on risk principal grows during each year that your investment is maturing.
In other words, IRR represents the annualized percentage rate earned on each dollar invested for each period it is invested (i.e., any money that is “on risk” continues to earn the IRR at an annual rate, while any repaid principal no longer earns interest).