Describe Fixed and Variable Expenses at Home.

Companies apply the time value of money in various ways to make yes-or-no decisions on capital projects as well as to decide between competing projects. Two of the most popular methods are net present value and internal rate of return, or IRR. In the first method, you add up the present values of all cash flows involved in a project. If the total is greater than zero, the project is worth doing; the higher the net present value, the better. In the IRR method, you start with the cost of the project and determine the rate of return that would make the present value of the future cash flows equal to your upfront cost. If that rate — called the internal rate of return — is greater than your discount rate, the project is worth doing.