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An organization’s valuation can create very efficient planning and capital distribution making this an important step in the organization’s valuation. The short and long term investments of an organization affect the day to day decisions of management and it also affects the organization’s value. Because this affects the value of the organization it becomes extremely important to use appropriate and precise valuation methods in order to estimate business activities and or projects that can affect the value. Using valuation methods such as Internal Rate of Return or the Modified Internal Rate of Return can eliminate improper decisions and the organization will be able to manage their assets and capital in a successful manner and meet the…show more content…
Even though the figures may be different management usually choose the projects with the highest internal rate of return because the estimates are high. The discounted rate is the measure of the internal rate of return when the net present value is at zero. The net present value is also used as a method of valuation and helps determine the internal rate of return. This is a very important set in deciding on a project because if the estimated calculations are not done properly this can lead to a bad business decision and it can lead to a smaller profit or even a loss on the project. The internal rate of return assumes that the project/investment has initial cash outflow for the future. This is not always true because there may be expenses that are not redirected in the initial cash outflow. In the net present value formula, if the income amounts (Ct) received in each period is higher than the expected amount then a higher internal rate of return must be known to reset the net present value at zero. The internal rate of return shows positive figures that management uses to select projects. However, because there is an estimate it can cause the budgeting to have mistakes because of the reinvestment figures. For example if there are two projects that have internal rate of returns that are the same at 15%, have the same figures for the cash flow, risks, and the allotted time

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