Capital Budgeting: Analysis that Improves Long-term ROI

Author: Blair Cook

This is a course in establishing a capital budgeting process from conducting due diligence through to communicating and facilitating discussions of capital investment opportunities with decision makers. Capital budgeting is a key strategic process that ensures capital is deployed to only those opportunities that have a high probability of meeting or exceeding the expectations for return. It is also a process that ensures that scarce capital resources are deployed to the highest yield opportunities across the organization.

In this course, we will walk through how to develop assumptions, prepare the capital budgeting analysis, and quantify risk using tornado charts and monte-carlo simulation analysis. We will also discuss the financing implications of capital investment opportunities by looking at lease versus buy analysis, a related but often confused part of capital budgeting.

Publication Date: April 2021

Topics Covered

• Developing Robust Assumptions
• Discount Rate
• Capital Budget Walkthrough
• Communicating and Facilitating a Capital Budget Decision
• Financing Investment Decisions

Learning Objectives

• Recognize how to develop assumptions that explore and document the range of potential outcome
• Identify and calculate the appropriate discount rate for capital budgeting analysis
• Recognize how to prepare a capital budgeting analysis
• Recognize how to prepare a decision package for a capital budgeting decision including a quantification of risk
• Recognize how to prepare lease versus buy analysis
• Identify which approach helps ensure the inherent risk of an assumptions is documented and analyzed
• Recognize what would be excluded from a capital budgeting analysis
• Describe the Excel function that can be used to calculate an implicit financing rate of a lease

Level
Intermediate

Instructional Method
Self-Study

NASBA Field of Study
Finance (1 hour)

Program Prerequisites
Basic understanding of finance principles.

Advance Preparation
None