Capex ROI Evaluator

When to use

Use whenever a capital expenditure decision needs a return evaluation — new equipment, a facility investment, a technology buildout — especially replacing an evaluation that computes NPV at WACC and stops there, without checking the result against the company's actual hurdle rate, which is often set higher than WACC to account for risk and opportunity cost.

What it does

Computes NPV, IRR, payback period, and simple average ROIC for a capital project via a bundled calculator, checks IRR explicitly against the stated hurdle rate (not just WACC), and flags the specific case where a project would look approvable on NPV-at-WACC alone while actually failing the higher bar the hurdle rate represents.

Method

1. State the initial capex, useful life, and expected annual cash flows the investment is projected to generate — driver-based where possible, not a single assumed number.
2. State both WACC and the hurdle rate explicitly, as different numbers. WACC is the cost of capital; the hurdle rate is usually WACC plus a risk premium reflecting the specific project's risk and the opportunity cost of capital versus other available projects. Using WACC alone as the approval bar systematically approves riskier projects than the company actually intends to accept.
3. Run the bundled calculator (scripts/capex_roi.py) to get NPV at both WACC and hurdle rate, IRR, payback period, and simple ROIC.
4. Check IRR against the hurdle rate explicitly, not just whether NPV at WACC is positive — a project can show positive NPV at WACC while its IRR sits below the hurdle rate, meaning it clears the cost-of-capital bar but not the company's actual required-return bar.
5. Read the WACC-vs-hurdle NPV comparison as a specific flag, not a rounding difference — when NPV is positive at WACC but negative at the hurdle rate, that's exactly the situation where evaluating on WACC alone would approve a project the company's own stated standard would reject.
6. Check payback period against any stated capital constraints separately from NPV/IRR — a project with strong NPV but a very long payback might still be wrong for a business with tight near-term capital availability, a consideration NPV alone doesn't capture.
7. Document the hurdle rate's basis (why this project gets this premium over WACC) so the evaluation is defensible when someone asks why one project used a 12% hurdle and another used 15%.