Capital Budgeting

Overview/Description
 The course begins by explaining what a capital budget is and identifying different types of Fixed Assets. It lists several factors that influence fixed asset acquisitions. It goes on to identify different sources of funds and discusses the advantages and disadvantages of accessing each one. The course talks about the importance of carefully evaluating any acquisition of fixed assets before spending any money. The learner is introduced to two criteria, returns and time, and three benchmarks, returns, time, and risk to evaluate any buying decision. It illustrates by way of examples, how these different benchmarks can be used to evaluate acquisitions of fixed assets. The course introduces the concept of the "time value of money" and using examples shows the learner how to use different value tables, Present Value, Future Value and Annuity Tables to appraise different kinds of fixed asset acquisitions. It restates two formulae, the Net Present value (NPV) and the Internal Rate of Return (IRR) and uses both to evaluate fixed asset acquisitions. In the last section the course lists different kinds of current assets and explains the concept of liquidity as applied to business assets. After explaining how excessive levels of current assets may lead to cash flow gaps, the course introduces two financial ratios the Inventory Turnover Ratio, and the Day Sales Outstanding Ratio, that the learner can use to monitor and control two important current assets, Inventory and Receivables. With the help of examples the course shows learners how to use these ratios.

Target Audience
 The target audience is any manager, department managers, project managers, business managers, office managers, or any one with budget preparation responsibility.

Expected Duration
4.5 hours

Lesson Objectives:

Acquiring Fixed Assets

  • recognize the value of analyzing any acquisition of a fixed asset.
  • categorize tangible and intangible assets.
  • identify the factors that influence any acquisition of fixed assets.
  • identify the relationships between components of a capital budget.
  • determine the consequences of using different sources of funds to acquire fixed assets.

    • Using Capital Budgeting Tools

  • recognize the importance of using capital budgeting tools to decide whether to acquire a fixed asset.
  • apply different benchmarks to the given capital investment proposals.
  • compute the time values of given investments using the appropriate time value tables.
  • apply the NPV method to determine whether a given investment decision is appropriate.
  • apply the IRR method to determine whether a given investment decision is appropriate.

    • Controlling Liquid Assets

  • recognize the importance of controlling the levels of liquid assets.
  • identify the current assets of an organization.
  • interpret the inventory turnover ratio in a given situation.
  • interpret the days-sales outstanding ratio in a given situation.

    • Course Number: FIN0263