The capital project case study, part 2

When evaluating a capital project, there are several metrics that can be used in order to determine whether or not it is an attractive investment. Among the most common of these are net present value (NPV), internal rate of return (IRR) and modified internal rate of return (MIRR). Each one provides different insights about potential returns on this project which can then help us make more informed decisions around investing our resources.

For NPV, we need to calculate the difference between a project’s present value and its initial cost – and if number turns out positive then this indicates that expected cash flows exceed investments costs which makes it worthwhile undertaking. Conversely though with IRR we look at rate of return generated by said project rather than its current worth while MIRR compares differences between projected values at each given point in time so as to account for effects compounded interest would have over longer periods.

Therefore when trying to decide if given capital project is viable option or not, it becomes essential that all three metrics be taken into consideration since what may appear profitable initially may turn out lack sustainability once bigger picture has been taken into account. By using these models then, investors should hopefully have better understanding what types projects yield best results hence allowing them make wiser decisions going forward.