Unit 6: Capital Budgeting Techniques
This unit demonstrates how a financial manager uses financial tools to make capital investment decisions. It addresses the concept of capital budgeting and how to evaluate investment projects using the net present value calculations, internal rate of return criteria, profitability index, and the payback period method. In particular, this unit will teach you how to determine which cash flows are relevant (should be considered) when making an investment decision. For instance, suppose you have been asked to give your recommendation about buying or not buying a new building. As the financial manager, it is your task to identify cash flows that, in some way or another, affect the value of the investment (in this case, the building) and calculate whether the money spent on the project upfront is more or less than the value received. Also, this unit explains how to calculate "incremental" cash flows when evaluating a new project, which can also be considered the difference in future cash flows under two scenarios when a new investment project is being considered.
Completing this unit should take you approximately 6 hours.
6.1: Capital Budgeting and Net Present Value
6.2: Internal Rate of Return
6.3: Profitability Index
6.4: Payback Period Method
6.5: Evaluating Projects Incrementally
Unit 6 Practice and Assessment