What is capital planning? Why is IRR, Internal Rate of Return, important to an organization?
IRR, Internal Rate of Return, helps companies figure out what the rate of return is on individual projects; what the project earns. This is important to companies as it helps gauge which projects to accept or reject. To accept a project, the IRR is equal to or greater than or equal to the required rate of return. If the IRR is less than the required rate of return, then it is rejected. IRR is important to organizations as it’s typically in line with the goal of maximizing shareholder wealth.
