capitalbudgeting 0.1.0

Indicators for capital budgeting: npv, irr, mirr, ipp, etc

Indicators Used Frequently in Capital Budgeting

• regular cash flows: The 1st value of cfs is negative (investment), other values of cash flows are positive
• irregular cash flows: The signs of cash flows change more than once

Attributes

• cfs: cash flows
• irregular: bool

Methods

• npv(): net present value
• irr(): internal rate of return
• mirr(): modified internal rate of return
• ipp(): investment payback period

npv

Given a series of cash flows (cfs) and discount rate (r), npv is the present value at r of all cash flows.

$$ \text{npv} = \sum_{t = 0}^n \frac{\text{cf}_t}{(1 + r) ^ t} $$

NB: Differring from npv in finance, function npv() in MS Excel does not take account the 1st value of cfs

irr

Given a series of cash flows (cfs), irr is the discount rate at which the present value of all cash flows equals 0

$$ \sum_{t = 0}^n \frac{\text{cf}_t}{(1 + r) ^ t} = 0 $$

mirr

The modified internal rate of return (MIRR) is a measure of the profitability of a project or other investment.

It assumes that positive cash flows are reinvested at the firm's cost of capital and that the initial outlays are financed at the firm's financing cost.

By contrast, the traditional internal rate of return (IRR) assumes the cash flows from a project are reinvested at the IRR itself.

NB: regular cfs or irregular cfs (signs of cash flows change more than once) are all ok

$$ \text{mirr} = (\frac{\text{future values of positive cfs}}{\text{present value of negative cfs}}) ^ {1/n} - 1 $$

ipp

IPP is the time to pay back the investment

Usage

from capitalbudgeting import CapitalBudgeting as CapBud

cb = CapBud([-100, 21, 21, 24, 23, 32, 25])
print(cb.npv(0.09))
print(cb.irr())
print(cb.mirr(0.05))
print(cb.ipp())

References

• https://www.investopedia.com/terms/m/mirr.asp