What is capital planning? Why is the internal rate of return important to an organization?

Why
is net present value important to a project? How do you select from multiple projects
presented to your organization?

Capital planning is the decision-making process with respect to investments in
fixed assets. In other words, it is the process of finding and selecting profitable
projects or proposals in which to invest company resources.

IRR, or internal rate of return, is important to an organization because the
calculation connects the project back to the primary goal of every
organizationcreating wealth for its shareholders. Organizations want to
pursue projects that generate a rate of return higher than that required by
its investors. The IRR calculation provides the internal rate of return
needed to perform the comparison. If the internal rate of return on a
project is equal to the shareholders required rate of return, then the project
should be accepted, because the firm is earning the rate that its
shareholders require

NPV, or net present value, calculates future cash flows expected from a
project, discounted to present value, and compared against the initial
outlay required for the project. If the discounted cash flow projection is
equal to or greater than the initial outlay, the project is profitable and
should go forward. If the net present value is negative, the company
should pursue other opportunities.