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Project Valuation and the Capital Budgeting Process

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  • Complex Cash Flow Analysis
    • Considers more complex cash flow scenarios involving multiple cash flows, perpetuities, and the impact of multiple compounding interest periods per year. Many practical problems are worked both analytically and with spreadsheets.
  • Project Valuation Techniques
    • Project valuation determines whether the financial benefits are greater than the required investment. There are three primary valuation metrics used in business: the net present value, the payback period, and the internal rate of return. This module explores how to determine these metrics both analytically and using spreadsheet analyses.
  • Project Selection Techniques
    • Project valuation criteria such as the NPV and IRR determine whether a project’s financial benefits are greater than the required investment. Companies use these metrics to select projects for funding during the annual capital budgeting process. Technical managers also make investment decisions but are often constrained to select only one alternative from several good ones. This module covers several project selection techniques to ensure the best project is selected.
  • Depreciation, Taxes, and Inflation
    • Preparing a comprehensive cash flow analysis for any investment requires accounting for the depreciation of equipment and other assets and the taxes paid on the project’s profits. Inflation can also significantly impact future cash flows and therefore must be addressed as well. This module develops the concepts of depreciation, taxes, and inflation and shows how these are determined.
  • Building the Business Case
    • A critical element of a project’s business case is the financial justification – it needs to make good business sense for the company. This module focuses on the three primary components of a project’s cash flow statement: operations, net working capital, and capital spending. The project’s financial valuation is then conducted on the total cash flows, resulting in the NPV, IRR, and Payback Period to assess whether the project is financially worthwhile.