CAPITAL BUDGETING PROJECT INVESTMENT DECISIONS (ENTRY LEVEL)

“In theory, there is no difference between theory and practice. But, in practice, there is." Manfred Eigen (scientist).

2 DAYS TRAINING

Capital Budgeting is not only about

NPV and IRR

Are capital

budgeting as

simple as this rule ?

Capital Budgeting is not only about

NPV and IRR

Unfortunately

Capital Budgeting

is not as simple as

we think.

Capital Budgeting

can be more

complex, just like

this example :

Check Out

our training

materials at

the following

pages

Part 1 : Investment Decision Rules

NPV and Stand-Alone Projects

• Applying the NPV Rule

• The NPV Profile and IRR

• Alternative Rules Versus the NPV Rule

• How Bad Are Mistakes? Errors in Cash Flows versus Errors in the Cost of Capital

The Internal Rate of Return

• Applying IRR Rule

• Pitfall #1 = Delayed Investment

• Pitfall #2 = Multiple IRRs

• Pitfall #3 = Nonexistent Rule

• Modified Internal Rate of Return (MIRR)

The Payback Rule

• Applying The Payback Rule

• Payback Rule Pitfalls in Practice

• Why Do Rules Other Than the NPV Rule Persist?

Part 1 : Investment Decision Rules

Choosing Between Projects

• NPV Rule and Mutually Exclusive Investments

• IRR Rule and Mutually Exclusive Investments

• The Incremental IRR

• When Can Returns Be Compared?

• Common Mistake: IRR and Project Financing

Project Selection with Resource Constraints

• Evaluating Projects with Different Resource Requirements

• Profitability Index

• Shortcomings of Profitability Index

Other Issues

• Mutually Exclusive Projects with Unequal Lives

• Replacement Decision

• Economic Life versus Physical Life

• The Optimal Capital Budget

Part 2 : Fundamentals of Capital

Budgeting

Forecasting Earnings

•Revenue and Cost Estimates

• Incremental Earnings Forecast

• Indirect Effect on Incremental Earnings

•The Opportunity Cost of an Idle Asset

•Sunk Cost on Incremental Earnings

•Real-World Complexities

Determining Free Cash Flow and NPV

•Calculating Free Cash Flow from Earnings

•Calculating Free Cash Flow Directly

•Calculating the NPV

Choosing Among Alternatives

•Evaluating Manufacturing Alternatives

•Example of Comparing Free Cash Flow For a Company’s Alternatives

•Future Adjustments to Free Cash Flow

Part 3: Capital Budgeting Applications

and Pitfalls

So Many Returns: The Internal Rate of Return, the Cost of Capital, the Hurdle Rate, and the Expected Rate of Return

Promised, Expected, Typical, or Most Likely?

Badly Blended Costs of Capital

Anecdote: Risk and Conglomeration

How Bad Are Mistakes? Do Projects Really Need Their Own Costs of Capital?

The Economics of Project Interactions 401

Evaluating Projects Incrementally

Behavioral Biases

Anecdote: Small Business Failures

Incentive (Agency) Biases

Anecdote: Fiduciary Responsibility, or the Fox Guarding the Henhouse

An NPV Checklist

Part 4 : Incorporating Project Risk into

Capital Budgeting

Break-Even Analysis

Scenario Analysis

Sensitivity Analysis

Monte Carlo Simulation

Part 5 : Real Options : Illustrative

Applications

Introduction to Real Options

Decision Trees: One Set of Parameters

Projects with Different Parameters

Valuing Real Options

The Investment Timing Option: An

Illustration

The Growth Option: An Illustration

Training Desktop

Date : please check it in at “futurum corfinan” (2-day training)

Venue : Hotel at Jakarta Pusat

Notes :

Presentation slides will be distributed in softcopy

Minimum participants = 10 persons

After the training, participants are allowed to discuss about the training materials via email in

the website

Contact email : futurumcorfinan@gmail.com

Visit Website and Training Testimonials : google “futurum corfinan”