If an organization is focused on long-term growth, which project should they select based on IRR?

Choosing a project based on the Internal Rate of Return (IRR) is a common way to evaluate the potential profitability of investments. In this scenario, the organization is focused on long-term growth, and selecting the project with the highest IRR would align with that objective.

Project D, with an IRR of 14%, is the optimal choice because it offers the highest return relative to the other projects. A higher IRR suggests that the project is expected to generate more cash flow per each unit of investment over time, which is critical for fostering long-term growth. Consequently, selecting Project D indicates a strategic decision to prioritize projects that maximize potential returns, ultimately benefiting the organization in terms of increased capital for reinvestment, ability to fund future projects, and improved financial stability.

The other projects, despite their own merits, present lower rates of return, which may not be as appealing for an organization focused on long-term growth. Choosing a project with an IRR of 12%, 3%, or 8% would limit the potential for profitability compared to the higher yield provided by Project D. Thus, prioritizing Project D aligns perfectly with the goal of pursuing growth through optimal investments.