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Marginal Efficiency Of Investment Formula:
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The Marginal Efficiency of Investment refers to an expected rate of return on investment as additional units of investment are made under specified conditions and over a stated point of time.
The calculator uses the Marginal Efficiency of Investment formula:
Where:
Explanation: The formula calculates the expected rate of return as a percentage by dividing the prospective yield by the supply price and multiplying by 100.
Details: Calculating the Marginal Efficiency of Investment is crucial for investment decision-making, capital budgeting, and evaluating the profitability of additional investment units under specific market conditions.
Tips: Enter the prospective yield and supply price in consistent units. Both values must be positive numbers greater than zero for accurate calculation.
Q1: What does Marginal Efficiency of Investment measure?
A: It measures the expected rate of return on additional investment units under specified conditions over a stated period of time.
Q2: How is Prospective Yield different from actual yield?
A: Prospective Yield is the expected flow of income from the investment during its lifetime, while actual yield is the realized income after the investment period.
Q3: What factors influence Supply Price?
A: Supply Price is influenced by production costs, market competition, technological factors, and the company's pricing strategy for specific goods or services.
Q4: When should MEI be used in investment analysis?
A: MEI is particularly useful when evaluating incremental investment decisions and comparing the expected returns of additional capital expenditures.
Q5: Are there limitations to the MEI calculation?
A: Yes, MEI relies on estimated future yields and assumes constant conditions, which may not reflect real-world market volatility and changing economic factors.