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Budgeting and Financial Management: Managing Risk in Capital Budgeting

Audience

Managers, prospective managers, and any other employees seeking advanced competency in the area of budgeting and financial planning

Prerequisites

An understanding of the principles of financial planning

Course Aim

To give the learner a thorough understanding of the risk and uncertainty that is involved in capital budgeting

Learning Objectives

Appraise projects that are mutually exclusive and have unequal lives. Appraise capital investments when finances are limited. Explain the effects of taxation and inflation on capital investment appraisal. Discuss traditional risk measurement techniques. Use the standard deviation and probability distribution methods. Use simulation techniques to measure risk. Define sensitivity analysis. Explain adjusting discount factors to account for risk.

Topics Covered

Capital budgeting and uncertainty - Mutually exclusive projects with unequal lives - Hands-on: Mutually exclusive projects with unequal lives - Capital Rationing - Taxation and investment appraisal - Inflation and investment appraisal Risk measurement - Introduction to risk measurement - Standard Deviation and Probability Distribution - Simulations - Sensitivity analysis Risk-adjusted discounting & lease vs. borrowing - Risk-adjusted discounting - Weighted average cost of capital - Lease versus borrowing - Hands-on: Lease versus borrowing