Investment Feasibility Engine (NPV / IRR)

What it does

This engine computes a capital budgeting decision end-to-end — answering "Should we make this investment?" not with a single-point estimate but with canonical finance frameworks and a risk distribution.

Five frameworks at work:

1. DCF / NPV — Free cash flows discounted to present at WACC. FCF_t = (Revenue − Cost − Depreciation)·(1−T) + Depreciation − Capex_t − ΔNWC_t. Rule: NPV > 0 ⇒ creates value; for mutually exclusive projects, highest NPV wins (not IRR).
2. IRR & MIRR — IRR is the rate that zeroes NPV (rule: IRR > WACC). For non-conventional flows (multiple sign changes) IRR can be multiple/meaningless → MIRR (reinvestment = WACC) is single-valued and reliable, always reported.
3. WACC / CAPM — The discount rate itself: WACC = E/V·Re + D/V·Rd·(1−T), Re = Rf + β·ERP. In high-inflation settings like Turkey, nominal flow ↔ nominal rate (or real ↔ real) Fisher consistency is mandatory — the most common fatal error.
4. Payback & Discounted Payback + PI / EAA — Liquidity lens; PI = PV/Capex > 1, different-life projects annualized via EAA.
5. Risk: Tornado + Scenario + Monte Carlo — Each variable swung ±10–20% and NPV sensitivity ranked (tornado), base/best/worst NPV/IRR produced, and with data, 10k-iteration Monte Carlo yields P(NPV<0) and P10/P50/P90; break-even (NPV=0) critical variables identified.

Output is a weighted 0–100 Investment Attractiveness Score (PI, IRR↔WACC margin, discounted payback, P(NPV<0), assumption robustness) and a Go / Conditional Go / Reject verdict.

When to use it

For forward-looking capital allocation decisions: returns on a new machine/line/branch/SaaS contract, "compute NPV-IRR", "how many years payback", "how sensitive to the discount rate". Not for pure accounting reporting or historical cash-flow extraction — this engine makes a forward investment decision.

Method / frameworks

Brealey, Myers & Allen — Principles of Corporate Finance (NPV>0 rule, IRR pitfalls, MIRR, EAA); Damodaran — Investment Valuation + current country risk premium/ERP (CAPM inputs); CAPM (Sharpe/Lintner); ISO 31000 (risk/scenario discipline); for TR macro consistency, CBRT policy rate + TÜİK inflation (nominal-real calibration). Unproven assumptions are flagged in gaps — no false precision.