Capital budgeting is the process that companies use to decide which long-term investment projects they should undertake. These projects can be anything from investing in R&D or in new technology to expanding assets owned by a company. Capital budgeting involves analyzing the costs and benefits of these projects to determine their potential profitability and whether they are worth the investment for maximum growth, and that is what this course is about.
The course will begin by introducing students to the concept of capital budgeting and its importance in strategic decision-making. The course will then cover various techniques for evaluating capital investment projects, such as net present value (NPV), internal rate of return (IRR), payback period, and profitability index. Throughout the course, students will explore the assumptions, limitations, and applicability of different capital budgeting techniques, as well as their strengths and weaknesses.
The uncertainty dimension is important in this course. An interesting question here is what is relevant risk. Students will learn how to incorporate risk and uncertainty into capital budgeting decisions, and how to use risk-adjusted discount rates and other methods to adjust for risk.
The importance of capital structure for projects are dealt with by focusing specifically on how investment decisions are made in case of financial distress, and the course finally discusses traditional approaches to take care of project financing, both separately and included in the required rate of return.