CAPITAL BUDGETING · FORMULA AND EXCEL
1. Build on the basics
This track assumes you can estimate project cash flows and calculate NPV, IRR and MIRR. If needed, begin with Basics of Capital Budgeting.
Comparative & Complex Project Analysis
Choose among alternatives, compare lives and allocate a limited budget.
Risk Analysis & Decisions under Uncertainty
Test assumptions, identify break-even points and model uncertainty.
Advanced Capital Budgeting & Real Options
Value managerial flexibility and assess international projects.
Cost of Capital & Project Financing
Match project risk with discount rates and separate financing effects.
CAPITAL BUDGETING · FORMULA AND EXCEL
2. The advanced learning sequence
| Lesson | Main applications |
|---|---|
| Comparative & Complex Project Analysis | Mutually exclusive projects, NPV–IRR conflicts, incremental analysis, EAC/EAA, replacement chains and capital rationing |
| Risk Analysis & Decisions under Uncertainty | Sensitivity, scenarios, financial break-even, Monte Carlo, decision trees and certainty equivalents |
| Advanced Capital Budgeting & Real Options | Expansion, abandonment, delay, switching, inflation and international cash flows |
| Cost of Capital & Project Financing | Project hurdle rates, pure-play beta, WACC and adjusted present value |
CAPITAL BUDGETING · FORMULA AND EXCEL
3. A decision-focused approach
For each problem identify what changes from a simple standalone investment: a constraint, an alternative, a different life, an uncertain input, a future management action or a financing effect. Adapt the model to that feature before interpreting the return.
The project-comparison lesson contains both the corrected original two-project example and a clearly labelled variant that produces a genuine NPV–IRR conflict.
Sources and further reading
Selected relevant sections of the supplied materials informed this series. Prasanna Chandra’s planning framework also informs the emphasis on estimation and strategic fit. These are original explanations and teaching cases, not reproduced textbook examples.
- Prasanna Chandra (2019), Projects: Planning, Analysis, Selection, Financing, Implementation, and Review, 9th edition, McGraw Hill. The uploaded 150-page scan was visually checked in selected opening sections: importance and difficulties of capital investment, project categories, planning–analysis–selection–financing–implementation–review, strategy and demand forecasting. It ends during Chapter 4; later detailed appraisal chapters appear in its contents but are not present in this extract.
- Dayananda, Irons, Harrison, Herbohn and Rowland (2002), Capital Budgeting: Financial Appraisal of Investment Projects, Cambridge University Press. Reviewed selected passages on relevant cash flows, appraisal methods, sensitivity, simulation and capital constraints. The chapter structure also guides further reading.
- Dr. Vijay Shankar Pandey, Capital Budgeting Techniques, uploaded as “Basics of Capital Budgetings”: process, payback, ARR, NPV, IRR and comparison. Rounded examples and conventions are checked independently rather than copied.
- Professor James P. Dow Jr., FIN 303, Part 8: Topics in Capital Budgeting: uncertainty, flexibility and unequal project lives.
- Capital Budgeting – Risk Analysis, uploaded five-page extract: probability, certainty equivalents and risk-adjusted approaches.
For continued study: Dayananda Chapters 1–2 for foundations; 5–6 for appraisal; 7–9 for risk; 11–12 for constrained selection; 16 for international appraisal. Review here is targeted, not a claim that the entire 343-page book was read.
Prasanna Chandra: further-reading map
The 9th-edition contents identifies Chapter 8 (Investment Criteria), Chapter 9 (Project Cash Flows), Chapter 10 (Cost of Capital), Chapter 11 (Project Risk Analysis), Chapter 12 (Project Rate of Return) and Chapter 13 (Special Decision Situations). These are reading directions, not claims that their absent pages were consulted.
Public reference links
- OpenStax: NPV
- OpenStax: IRR
- OpenStax: PI, MIRR and discounted payback
- OpenStax: choosing projects
- ACCA: incremental investment appraisal
- ACCA: inflation
- Microsoft: NPV timing convention
- Microsoft: MIRR
- Damodaran: Applied Corporate Finance resources
All rates, taxes, exchange rates and business figures in the examples are teaching assumptions. Results use unrounded calculations and are rounded for display. Excel formulas use English function names and commas.