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Understanding Capital Budgeting Decisions

ACCOUNTING, FINANCE AND CONTROL, CASE SLIDE
Institute of Management Technology, Nagpur, 11 Slides

Teaching Note Preview

Understanding Capital Budgeting Decisions

 

Synopsis

Business organizations have to allocate funds judiciously towards long-term capital investments, to ensure good returns and shareholder value maximization. Small businesses and newly established ventures (startups) have very limited funds in the initial phase where the focus is on creating and nurturing customer base and brand identity. The financial priority of such entities is to rationalize the capital spending in order to earn positive return on investment.

A good understanding of how to measure and manage investment in long-term assets can enable entrepreneurs to keep control on funding estimates in successive phases of maturity and growth. This case slide is designed aims to explain fundamental concept of Payback Period and Net Present Value (NPV) to the students undergoing a Corporate Finance or Financial Management course.

Expected Learning Outcomes

  • • Understand what are Capital Budgeting decisions of business organizations
  • • Learn two important evaluation methods for accepting or rejecting a capital expenditure (long-term investment) proposal namely Payback Period and NPV
  • • Learn about factors affecting the choice of evaluation technique for capital budgeting decisions

 

Case Positioning and Setting

The case slide can be used for an introductory course in Financial Management or Corporate Finance at Undergraduate level – To explain fundamental concept of Payback Period and Net Present Value (NPV)............

$3.37
Rs 0
Product code: FIN-6-0029, FIN-6-0029A

Abstract

This case slide will enable the instructor to discuss the basics of capital budgeting decisions. Business organizations have to allocate funds judiciously towards long-term capital investments, to ensure good returns and shareholder value maximization. Small businesses and newly established ventures (startups) have very limited funds in the initial phase where the focus is on creating and nurturing customer base and brand identity. The financial priority of such entities is to rationalize the capital spending in order to earn positive return on investment.

A good understanding of how to measure and manage investment in long-term assets can enable entrepreneurs to keep control on funding estimates in successive phases of maturity and growth. The investment decisions have to take into account factors like cost of capital and net cash flows from the project. Unless the project yields positive return, it does not make financial sense to divert funds into such an investment. The case slide provides a summarized explanation for the same using a small example of capital investment decision dilemma.



Pedagogical Objectives

  • To understand what are Capital Budgeting decisions of business organizations
  • To learn two important evaluation methods for accepting or rejecting a capital expenditure (long-term investment) proposal namely Payback Period and NPV
  • To learn about factors affecting the choice of evaluation technique for capital budgeting decisions

Case Positioning and Setting

The case slide can be used for an introductory course in Financial Management or Corporate Finance at Undergraduate level – To explain fundamental concept of Payback Period and Net Present Value (NPV)



This Case Pack Includes:
- Abstract
- Case Slide
- Teaching Note (**ONLY for Academicians)
$3.37
Rs 0

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