Investment and capital project decisions: the guide
Is this project worth it: payback, net present value (NPV), and internal rate of return (IRR), compared with the cost of capital and the alternatives.
Facts checked against sources onWhat strong candidates can do
- Calculate payback, NPV, and an approximate IRR
- Compare a project with the cost of capital and with other uses of the money
- Avoid adding up future cash without discounting it
Common questions
What is an investment decision case?
Is this project worth it: payback, net present value (NPV), and internal rate of return (IRR), compared with the cost of capital and the alternatives.
How do you approach an investment decision case?
Estimate the cash flows, then judge the project on payback, net present value and internal rate of return against the cost of capital. Weigh the risks and the option of doing nothing.
What is the most common mistake in an investment decision case?
Relying only on payback, which ignores the time value of money and any cash after the payback date.
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