Here are 3 techniques companies use to decide whether to accept a project.

1. Calculate the project’s net present value (NPV). Forecast the project’s cash flows, discount them to their present value, and add them up. If the total is higher than zero, accept the project.

2. Calculate the project’s internal rate of return (IRR). This is the rate of return that would result in an NPV of zero. If the IRR is higher than the company’s required rate of return, accept the project.

3. Calculate the project’s payback period. This is how long it takes for the project to pay for itself. If you’ll get the money back within the company’s required payback period, accept the project.
#shorts
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