Budgeting and Feasibility Study Fundamentals

Introduction:

The primary objectives of capital budgeting and feasibility study are to maximize shareholder value, evaluate investment opportunities, manage risk, allocate resources efficiently, and plan for the long-term. By achieving these objectives, businesses can make informed investment decisions and ensure their long-term success.

Capital Budgeting Analysis and Feasibility studies help project managers evaluate how we invest in capital assets, i.e. assets that provide cash flow benefits for more than one year. We are trying to answer the following question: Will the future benefits of this project be large enough to justify the investment given the risk involved?

This course will include the business skills necessary for conducting a capital budgeting and feasibility study. This will also uncover the strengths and challenges your company might face at any stage of the business or project timely, and thus, ensure the success of your organization’s blueprint.

Course outcomes:

Upon successful completion of this course, participants will be able to:

1. Describe capital budgeting decisions and use the net present value (NPV) method to make such investment decisions.
2. Evaluate projects using sensitivity analysis.
3. Identify reasonable techniques to estimate or forecast relevant cash flows.
4. Compute the after-tax net present values of projects.
5. Use the payback model and the internal rate-of-return model and compare them.
6. Understand how companies make long-term capital investment decisions and how such decisions can affect the companies’ financial results for years to come.
7. Understand the importance of feasibility study.
8. Understand the elements of the feasibility study.
9. Understand the types of a feasibility study conducted.
10. Develop and create a report for a feasibility study

Course Content:

Day 1: Budgeting

• NPV
• Definition
• The one-period case
• The multiperiod case
• Future value and compounding
• Payback period
• Defining the rule
• Problem with the payback method
• The multiperiod case
• The discounted Payback rule

Day 2:

• The average accounting return
• Defining the rule
• Analyzing the average accounting return method
• The Internal rate of return IRR
• Problems with the IRR approach
• Defining of independent and mutually exclusive projects
• The profitability index
• The practice and capital budgeting

Day 3:

• Budgeting risks
• Understanding the risks
• Types of risks
• Risk assessment and mitigation strategy.
• Case study – Risk management scenarios

Day 4:

• Fundamentals of feasibility study
• What Is a Feasibility Study?
• What’s the Importance of a Feasibility Study?
• What Is Included in a Feasibility Study Report?
• Types of Feasibility Study
• Steps to Do a Feasibility Study
• Case study