1. Capital Budgeting
- Session THREE -

2. Outline
Section Page
Introduction 3
Capital Budgeting Process 6
Capital Budgeting Projects 11
Capital Budgeting Assumptions 16
Capital Budgeting Concepts 18
Cash Flow Analysis Challenges 20
Bottle Neck Analysis 24
NPV Analysis 25

3. Outline
Section Page
Internal Rate of Return Analysis 30
Case Study 1 - NPV & IRR 33
Payback Method 37
Case Study 2 – NPV & Payback Period 40
Capital Budgeting Application Form 45
Lease VS. Buy Decision 50
Case Study 3 – Lease vs. Buy Decision 52
Popularity & Usage of the Capital Budgeting Methods 57
Conclusion 58

4. Capital Budgeting Process (1/5)
• Generating Ideas
Step 1
• Analyzing Individual Proposals
Step 2
• Planning the Capital Budget
Step 3
• Monitoring and Post-Auditing
Step 4

5. Cash Flow Analysis Challenges (1/4)
Project Interactions That Make Incremental Cash Flow
Analysis Challenging Include:
Independent
vs. Mutually Project
Exclusive Sequencing
Projects
Unlimited
Funds vs.
Capital
Rationing

6. Case Study 1 – NPV & IRR

7. Case Study 2 – NPV & Payback Period

8. Lease VS. Buy Decision (2/2)
ease can be
treated in 2
ways
Capital lease Operating lease
The lessee records the leased The lessee records the leased
asset on its books as a fixed asset on its books as a fixed
asset and depreciates it, asset and depreciates it,
while recording interest while the lessee simply
expense separately records a lease payment

9. Case Study 3 – Lease vs. Buy Decision

10. Conclusion
Capital budgeting is a cost-benefit exercise. At the margin,
the benefits from the improved decision making should
exceed the costs of the capital budgeting efforts.

11. Thank You For Coming Today!
Facilitator: Antoine Tabbakh
Tel: +961 1 385 825 / website: www.bsf-lb.com
Email: info@bsf-lb.com
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