EFFICIENCY INDICES OF INVESTMENT IN IT PROJECTS WITH UNEQUAL LIVES

Abstract

Theoretical results not always give an unambiguous answer regarding the preference of using the indices of IT project investment efficiency. To complement some of such results, the Net Present Value (NPV), Profitability (PI), Equivalent Annual NPV (EANPV), Equivalent Annual PI (EAPI) and Internal Rate of Return (IRR) indices are researched by computer simulation. In this aim, the respective general problem is formulated, a model of comparative analysis of projects with unequal lives is defined and the SIMINV application is made up. Using SIMINV, the percentage of cases when the solutions, obtained using indices of each of the pairs {NPV, PI} – NP, {NPV, IRR} – NR, {PI, IRR} – PR, {EANPV, EAPI} – NPE, {EANPV, IRR} – NRE and {EAPI, IRR} – PRE, differ, for seven groups of alternatives of initial data, is determined. Based on done calculations were identified some properties of indices, including: the character of dependences on initial data; the relation larger/smaller between percentages of each of the pairs {NP, NPE}, {NR, NRE} and {PR, PRE} (for example, the use of EANPV and EAPI indices to compare projects with unequal lives not only allows a more accurate estimation of projects efficiency, but also the solutions obtained may differ more frequently than when using the NPV and PI indices); the overall size of the value range and maximum average percentage of cases with different solutions, which is of approx. 57% for the pair of indices EANPV and EAPI and is between 18% and 52% for the other five index pairs specified above.