Net profit :

Net profit represents the number of sales dollars remaining after all operating expenses,
interest, taxes and preferred stock dividends (but not common stock dividends) have been
deducted from a company's total revenue.

Net Profit =Total Revenue -Total Expenses

Payback Period:
The payback period is the time required to earn back the amount invested in an asset from
its net cash flows. It is a simple way to evaluate the risk associated with a proposed project.

Payback period=Cost of investment/annual net cash flow

Return on investment (ROI) :

Return on investment (ROI) measures the gain or loss generated on an investment relative to the
amount of money invested. ROI is usually expressed as a percentage and is typically used for
personal financial decisions, to compare a company's profitability or to compare the efficiency of
different investments.

ROI = (Net Profit / Cost of Investment) x 100

Net present value (NPV) :

Net present value (NPV) is the present value of an investment's expected cash inflows minus the
costs of acquiring the investment.

NPV = (Cash inflows from investment) – (cash outflows or costs of investment)

Example of Net Present Value

To provide an example of Net Present Value, consider company Shoes For You's who is
determining whether they should invest in a new project. Shoes for You's will expect to
invest $500,000 for the development of their new product. The company estimates that the
first year cash flow will be $200,000, the second year cash flow will be $300,000, and the
third year cash flow to be $200,000. The expected return of 10% is used as the discount
rate.
The following table provides each year's cash flow and the present value of each cash flow.

Year Cash Flow Present Value

0 -$500,000 -$500,000
1 $200,000 $181,818.18
2 $300,000 $247,933.88
3 $200,000 $150,262.96

Net Present Value = $80,015.02

The net present value of this example can be shown in the formula

When solving for the NPV of the formula, this new project would be estimated to be a
valuable venture.

Internal Rate of Return (IRR):

The Internal Rate of Return (IRR) is the discount rate that makes the net present value (NPV) of
a project zero. In other words, it is the expected compound annual rate of return that will be
earned on a project or investment.

Example: instead of investing $2,000 like above, you could also invest 3 yearly sums of $1,000 to
gain $4,000 in the 4th year ... should you do that instead?

I did this one in a spreadsheet, and found that 10% was pretty close:
At 10% interest rate NPV = -$3.48

So the Internal Rate of Return is about 10%.