What is meant by capital planning? Why is IRR important to an organiza

QUESTION

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?
Capital Planning: Capital planning is the creation of plans for the acquisition of Long-Term assets. When a company purchases an assets , for the asset to be profitable, it has to return more than what the company is paying for it over the long term. When investing in LT assets, companies look for a specific minimum return, called the Hurdle rate. This rate more¦

an compensates the company for the cost, plus adds in a % of profit. The IRR tells the company what % this asset is returning, and if it exceeds the Hurdle rate. NPV tells the company if the asset will be profitable, and by how much in dollars.

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