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  1. CFA Exam: Dec. 2019 Level I
  2. Study Session 10. Corporate Finance: Corporate Governance, Capital Budgeting, and Cost of Capital
  3. Reading 34. Capital Budgeting

Learning Outcome Statements

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1. Capital Budgeting: Introduction

a. describe the capital budgeting process and distinguish among the various categories of capital projects;
2. Basic Principles of Capital Budgeting

b. describe the basic principles of capital budgeting;

c. explain how the evaluation and selection of capital projects is affected by mutually exclusive projects, project sequencing, and capital rationing;
3. Investment Decision Criteria

d. calculate and interpret net present value (NPV), internal rate of return (IRR), payback period, discounted payback period, and profitability index (PI) of a single capital project;
4. NPV Profiles

e. explain the NPV profile, compare the NPV and IRR methods when evaluating independent and mutually exclusive projects, and describe the problems associated with each of the evaluation methods;
5. Comparison of the NPV and IRR Methods

e. explain the NPV profile, compare the NPV and IRR methods when evaluating independent and mutually exclusive projects, and describe the problems associated with each of the evaluation methods;
6. Popularity and Usage of the Capital Budgeting Method

f. describe expected relations among an investment's NPV, company value, and share price.