CAPITAL
BUDGETING AND MANAGERIAL DECISIONS
OVERVIEW/DESCRIPTION
Capital budgeting is an essential part of every company’s financial management. It involves examining investment assets and deciding whether or not those assets will achieve the company’s desired returns over an extended period of time. To effectively manage your company’s finances, you must evaluate a number of factors in making investment decisions.
Capital budgeting is an essential part of every company’s financial management. It involves examining investment assets and deciding whether or not those assets will achieve the company’s desired returns over an extended period of time. To effectively manage your company’s finances, you must evaluate a number of factors in making investment decisions.
Business
decisions involve choosing between alternative courses of action and developing
formal plans for future action. This course explains several methods of
analysis that can help business managers to choose alternatives that offer the
highest rate of return on investment or the greatest reduction in costs. In
this course, topics such as capital budgeting and managerial decisions provide
you with the concepts, procedures, and analytical skills you need to make
informed decisions in today's complex business environment.
OBJECTIVES
1.
Conceptual
· Explain
the importance of capital budgeting.
· Describe
the selection of a hurdle rate for an investment.
· Describe
the importance of relevant costs for short-term decisions.
2.
Analytical
· Evaluate
short-term managerial decisions using relevant costs.
· Analyze
a capital investment project using break-even time.
3.
Procedural
· Compute
payback period and describe its use.
· Compute
accounting rate of return and explain its use.
· Compute
net present value and describe its use.
· Compute
internal rate of return and explain its use.
OUTLINE
1.
Basics of Capital Budgeting
·
What is Capital budgeting?
·
The capital budgeting process
·
Importance of capital budgeting
·
Capital budgeting success
·
Difference between capital budgeting and
operationalbudgeting
·
Key features of capital budgeting
·
Planning and control mechanism
2. Understanding
the Purpose of Capital Budgeting
• The
need to plan, control and evaluate performance
• Strategic
and operational benefits of capital budgeting
• Capital
budgeting in the changing business environment
• Capital
budgeting success
3. Dos
& Don’ts in Capital Budgeting
• Managerial
/ analytical skills required
• Control
of ‘Slacks' in capital budget setting
• Traditional
budgeting Vs Capital budgeting
• Financial
and non financial skills required in budgeting
4.
Capital Budgeting Decision Rules
• Accounting
Rate of Return
• Payback
period for equal cash flow
• Internal
Rate of Return
• Profitability
Index
• Discounted
future cash flow
• Net
present value
• Simple
case study on capital Budgeting
5. Understanding
Cost Behaviour For Managerial Decisions
• Cost
classification
• Behaviour
of various costs—variable costs, fixed costs and semi-variable costs
• Break-Even
Point—Importance of knowing BEP in advance
• BEP
as a planning technique
• Cost-volume—Profit
relationship
• Standard
costing and variance analysis in budgeting
6. Types
of Cost Invo lved in Managerial Decision Making
• Differential
Cost, Incremental Cost, Avoidable Cost
• Relevant
Cost
• Sunk
Cost, Committed Cost, Notional Costs
• Out
of Pocket Cost
• Common
Cost
• Hidden
Cost
• Opportunity
Cost
• Sensitivity
Analysis
7. Managerial
Decision Making Tasks
·
Accepting Additional Business
·
Make or Buy Decisions
·
Scrap or Rework Defects
·
Sell or Process Further
·
Selecting Sales Mix
·
Identification of Decision Units
·
Analysis of Divisional Operating Expenses.
8. Simple
Case Study Presentation
Who Should Attends
·
Finance & Accounts Executives/Managers
·
Those responsible for capital
expendituredecisions
·
Accountants needing a refresher ofestablished
techniques
·
Business Owners responsible formanagerial
decisions
Instructor:
Dr.
Baldric Siregar
