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    Capital Planning/ IRR

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    What is meant by capital planning? Why is IRR important to an organization? Why is NPV important to a project? How would you select from multiple projects presented to your organization?

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    Capital planning deals with the issue of allocation of capital in the business. It helps in deciding the mix of the long term assets of the business. IRR is important to the organization. IRR is internal rate of return Internal rate of return is the return at which present value of cash inflows are equal to initial investments. In other words, it is the interest rate that would cause the net present value to be zero. It is mportant because its a ranking tool. The IRR would be calculated for each investment opportunity. The decision rule is to accept the projects with the highest internal rates of return, so long as those rates are at least equal to the firm's cost of capital. (principles of accounting, 2008)
    If IRR is greater than cost of capital ...

    Solution Summary

    Response provides steps for capital Planning/ IRR