Capital investment analysis methods

Free IMA CMA Part 2 (Strategic Financial Management) lesson in Capital Investment Decisions. 13 min read, ~1,964 words.

NPV discounts all project cash flows at the cost of capital and accepts projects where NPV 0. The decision criterion that maximizes shareholder wealth. IRR solves for the discount rate that makes NPV = 0 and accepts projects where IRR cost of capital (hurdle rate). IRR is scale-blind and timing-sensitive...