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A good way to look at IRR (or return on invested capital, or return on equity) is to say that the money going into your business needs to earn a certain rate of return. With the most simple example, say that your business is financed entirely from a bank loan at 10% - that means that every dollar you spend better be generating more than 10%, otherwise there is no point to your business (unless you're trying to turn a large fortune into a small one).
It gets a little more complicated when you add in owner equity, but look at it this way. The money that you invest in your business COULD go to other places - you buy a CD from the bank at 1%, buy government bonds, stocks, etc. - if you're going to put the money into the business, it should earn more of a rate of return than the alternatives.
Any business should figure out their cost of capital, and make sure that projects they undertake have an IRR higher than that.
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Steve Wilwerding
1998 3.4L Zenith Blue Boxster
2009 Meteor Gray Cayenne
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