Preliminary Cash Flow Model
Financial Metric Suggested Target Venture Threshold Primary Purpose
NPV >0 Measures total net wealth created
IRR 20%-25% Measures intrinsic annualised efficiency
ERR Depends on cost of capital Corrects for realistic reinvestemnt scales
Payback Period 3-5 years Time required to recover risk capital
WACC IRR ≥ (WACC + Premium)
  • Low-risk expansion: WACC + 0%
  • New product lines/R&D: WACC + 5%
  • Emerging markets: WACC + ≥10%
 Hurdle Dynamics
Notes:
NPV = Net Present Value
IRR = Internal rate of Return
ERR = External Rate of Return
WACC = Weighted Average Cost of Capital