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What is meant by capital planning?

A investing decision in a firm is known as the capital budgeting and also could be known as capital planning decisions. When a firm invest in a decision they general include a expansion, replacement of long term assets or make everything modern. Another investment decision can be the sale of a division or business. When it comes to the change in methods or how sales are distributed or advertised in a marketing proposal or even in research and development of programs that have long term habits for the firms benefits and liabilities. They have to be watched or evaluated so the investment decisions are approved. Some concepts are better than others when it comes to reliability but all provide enough information to get the general scope of the investment.

Why is IRR important to an organization?

The IRR is the discount rate that makes the NPV of an investment zero. An investment should be accepted if it is higher than the required return. If a investment is lower then its not accepted. The IRR can be a problem when a cash flow in not conventional. The IRR can be tricky and not provide the best investment in the long run. IRR is a discount rate: the rate at which the present value of a series of investments is equal to the present value of the returns on those investments. It can be found not only for equal, periodic investments such as those considered here but for any series of investments and returns. An investment should be accepted if it is higher than the required return; if it is lower, the project is not acceptable. Time value is important as it is based on the cash flow of a organization.

Why is NPV important to a project?

NPV is defined as the difference between an investment's market value and its cost. It is only a good investment if it makes money for the company so the company always wants a positive NPV. You have to have proper cash flows on a investment topic. You will also have to have the right discount rate and have to identify the foreseen cash flow. The cost of capital is the projects appropriate discount. You also have to have a value of cash flow that is calculated using the cost of capital at the discounted rate.

Net present value should be found out by subtracting present value of cash outflows from present value of cash inflows. The project should be accepted if NPV is positive The projects can be ranked from the most positive NPV to the lowest to determine profitability.

How would you select from multiple projects presented to your organization?

I would find or have a project that would have a higher NPV if it is exclusive. I would chose NPV over IRR because IRR are known to not be reliable enough to put my trust into them. Everything I have seen or most all the calculations showed different rates and that can cause confusion with the investors that you are wanting to invest.