This document discusses various financial measures for evaluating projects and revenue types. It presents examples of calculating new revenue, incremental revenue, retained revenue, and operational efficiencies over multiple quarters. The document also summarizes key financial metrics like net present value, internal rate of return, payback period, and discounted payback period and discusses their pros and cons for project evaluation. Finally, it analyzes three sample projects based on their net present value, risk, and return on investment.
2. Types of Revenue
Estimating Feature / Product Revenue
What is the value of Money ?
Financial Measures
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3. New Revenue
› New client
Incremental Revenue
› Extra Fees From Current Clients
Retained Revenue
› Cut Losses
Operational Efficiencies
› Save Time and efforts
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8. * Required 8
Quarter Employees Need
to do manual work
Salary per
Employee
Operational
Efficiency
1 0 0 0
2 0 0 0
3 1 1000 1000
4 1 1000 1000
5 1 1000 1000
6 2 1000 2000
7 2 1000 2000
8 2 1000 2000
9. If i pay 50 today and earn 100 after one
month, did I make profit ?
If i pay 50 today and earn 100 after one
year, did I make profit ?
If i pay 50 today and earn 100 after ten
year, did I make profit ?
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10. Should always take into consideration
Opportunity Cost
This can be
Interest rate
Apartment Rental
Even your Time has a cost
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11. Net Present Value
Internal Rate of Return
Payback Period
Discounted Payback Period
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12. * Required 12
End Of
Period
Net Cash
Flow
Present Value Factor
(12%)
Present
Value
1 -85750 0.97 = 1/1.03 -85750
2 -14150 0.94 = 1/1.03^2 -13338
3 18250 0.91 = 1/1.03^3 16701
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5
6
7
8
Net
13. Pros
› Easy to calculate
Cons
› Can be misleading (Value and not
percentage)
› Two projects with the same NPV 100,000.
One require big initial investment while the
other require less initial investment at the
beginning
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14. I Want to know what is the interest rate of investing
in this project as if i am investing my money in a
bank
So what it i* ? , the interest rate that will make the
present value of the money spent equal to zero
Equation => Σ ( V * (1 + i) ^ -t) = 0
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15. Pros
› No need to have get organization Interest Rate
› Some companies has its own MARR (minimum attractive
rate of return)
Cons
› difficult to calculate
› Can be misleading
If a project with 45% IRR but its value is small and it requires
tying up a critical developer resource
While another with 25% IRR value is big and it requires tying up
the same critical developer resource
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16. * Required 16
Quarter Net Cash Flow at End of
quarter
Running Total
1 -10000 -10000
2 -5000 -15000
3 12000 -3000
4 12000 9000
5 X X
6 X X
7 X X
17. Pros
› Calculations are easy
› Risk Period
Cons
› Doesn't Take into consideration Value of
the money
› What is the profitability of the project ?
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18. * Required 18
Quarter Net Cash
Flow
Present Value
Factor
Discounte
d Cash
Flow
Running
Total
1 -85750 0.971 -83252 -83252
2 -14150 0.943 -13338 <0
3 <0
4 <0
5 >0
6 >0
7 >0
19. Same as Payback period method, it just
takes into consideration the value of
the money
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20. First Project : have bigged NPV but risky (7 quarters)
Third Project : has the biggest ROI (IRR) with least risk but lowest NPV
Second Project has teh lowest ROI but can be combined with the
Third project so investment is almost same as the first project
while risk and ROI is moderate.
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21. Make sure to remember the following
Opportunity Cost
Types of Revenues
› New Revenue
› Incremental Revenue
› Retained Revenue
› Operational Efficiencies
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