Evaluating capital expenditures and long-term investments is a critical process for businesses. Better-managed organisations view all long-term programmes (capital and non-capital) in a disciplined environment.
This resource will explore some of the unique issues concerning budgeting and evaluating, financing, and managing a variety of activities.
In addition to typical capital projects, expenditures such as R&D, IT, advertising, training, and even planned builds in working capital can be viewed as long-term programmes. These all consume cash in anticipation of future pay out.
CGMA professionals can use this tool to help
- Compare evaluating long-term projects with an acquisition.
- Discuss the role of budgeting.
- Examine the impact of capital projects on cost structure.
- Explore IRR as an evaluation tool and compare it to the present value approach.
- Understand the basic concepts of financing and hedging.
There are two examples of investment analyses using discounted cash flow evaluation techniques, complete with downloadable Excel spreadsheets. The examples calculate net present value and the internal rate of return (IRR) for each project, showing how management can use the information to evaluate capital expenditures and allocate capital in their annual planning process.