The formula for calculating the marginal efficiency of investment

The marginal efficiency of investment (MEI) is a concept in finance that refers to the expected rate of return on a particular investment over its lifetime. It is a key consideration for businesses and investors when evaluating potential investment opportunities. The formula for calculating the marginal efficiency of investment is: MEI = (Expected future cash flows from investment / Initial cost of investment) * 100 In this formula, the expected future cash flows from the investment represent the total amount of money that is expected to be generated from the investment over its lifetime. This includes income from the investment, as well as any potential resale value. The initial cost of the investment represents the amount of money that is required to make the investment, including the purchase price and any associated costs such as installation or setup. By dividing the expected future cash flows by the initial cost of the investment and multiplying by 100, the formula provides a percentage that represents the marginal efficiency of investment. This percentage indicates the expected rate of return on the investment, and can be used to compare different investment opportunities and make informed decisions about where to allocate capital. Overall, the marginal efficiency of investment is a crucial concept in finance that helps businesses and investors assess the potential returns of different investment opportunities, and make informed decisions about where to allocate their resources.