another issue is with this statement:

“NPV and IRR are related to each other:
(1) If NPV = 0
(2) Then IRR = Cost of Capital”

IRR is not CC. IRR concept is a bit involved, I wont get into details. In capital budgeting one of the project acceptance criteria is IRR > CC.

I don’t think that you need WACC at this level of discussion. It’s for debt vs equity financing.

I also saw some people looking at IT projects as real options.

argyn

there are several issues with your post in PV/NPV/CV
computation parts. For example, your ROI computation
for proj A is a bit strange. Your investment is
100000, so your ROI must be based off of this value
somehow. The easiest way is to get the yield (aka
IRR).

You have to look at cash outflows and inflows.
Outflows are your investments, inflows are returns.

In your case you get ROI = NPV/PV. Think of this: you
divide by the present value of future cashflows
outflows. So your base is not your investment, but
rather returns, then why do you call this ROI (return
on _investment_)?

You could do ROI=NPV/IV, but that’s not good either,
because NPV has taken into account your RRR (required
rate of return). Why dont you simply get IRR? It has
its own issues too, and finance professors usually
prefer NPV approach to proj financing.

sorry, for being a bit harsh with critique. however, I
find your approach interesting, especially the
relation to “ethics”. that’s unusual

thanks
argyn