The NPV method is when the company will discount all possible income received from an investment, to where it is in line with their projected minimum rate of return (hurdle rate). At which point, managers will be able to see if the present value will have a positive or negative return for the organization in the future. Those projects that can provide positive present values will more than likely accepted, because they are providing a return that is in line with the company's minimum expectations. As a result, managers can use this method as another way of determining, if a project can meet their minimum objectives. When evaluating different projects, this provides an effective way of comparing the investment with the minimum returns. At which point, managers can see which project would provide the greatest economic benefit to an organization. ("Techniques of Capital Budgeting," 2009) The MIRR is when the managers are setting the hurdle rate to be in line with the company's expectations, for the life of the project. This allows managers to conservatively see what will be the minimum projected return to the company, by taking out other factors that could cause the percentage return to become more volatile (such as economic factors). The extra cash flow that is received above the hurdle rate can be reinvested in other projects, at the minimum rate of return. What all of this shows, is that a company can use this method as a way of conservatively accounting for the projected minimum total return. At the same time, this allows management to invest the excess returns in other capital projects, using the same methodology. Over the course of time, this will help an organization to effectively...
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