Several factors make investment decisions using capital budgeting one of the most important functions financial managers are involved with: 

  • Capital used to fund investment projects is limited, and must be carefully allocated across the entire business. 
  • Investments require the use of large amounts of cash, limiting future financial flexibility. 
  • If a firm invests too much into a capital project, it could have high depreciation on an asset with limited value. 
  • If a firm invests too little into a capital project, it may have limited capacity, putting it at a disadvantage versus competitors. 
  • Timing is important, ideally investment projects are completed close to when they are needed. 

This course provides an overview of the concepts of capital budgeting for investment decision making from the perspective of a finance and accounting organization, emphasizing the integration of cash flows, net present value analysis, risk assessment and risk management.

The course starts with an overview of the capital budgeting process and then reviews the analysis of cash flows during the development, operating and end of project phases.

This course covers the “Investment Decisions” material covered in the Certified Management Accountant (CMA) Part 2 examination.

Topics include: 

  • Capital Budgeting Process
  • Cash Flow Analysis
  • Payback and Discounted Payback
  • Net Present Value (NPV) and Internal Rate of Return (IRR)
  • Risk Analysis in Capital Budgeting
  • Evaluating and Ranking Capital Projects
  • Risk Mitigation Using Real Options 

Course Key Concepts: Cash Flows, capital budgeting, capital rationing, discount rate, discounted payback method, explicit costs, implicit costs, independent projects, internal rate of return (IRR), Monte Carlo simulation, mutually exclusive projects. net present value (NPV), operating cash flow, opportunity costs, payback method, real options, salvage of existing investment, sensitivity analysis, sunk cost, tax shield

Learning Objectives
  • Identify capital budgeting and the steps undertaken in developing and implementing capital budgets.
  • Recognize relevant and irrelevant costs related to capital budgeting.
  • Identify and calculate the pre-tax and post-tax cash flows related to the initial investment of a capital project.
  • Identify and calculate the pre-tax and post-tax cash flows during the period the project is in operation from revenue, operating expense, and changes to working capital.
  • Identify and calculate the pre-tax and post-tax cash flows related to the end of a capital projects life.
  • Recognize the benefits and limitations of the payback method and discounted payback methods.
  • Discover how to calculate NPV and IRR and demonstrate an understanding of the decision criteria of each method to determine acceptable projects.
  • Explore the factors that influence the discount rates used for capital projects.
  • Identify and compare NPV and IRR, focusing on the advantages and disadvantages of each.
  • Identify capital rationing, mutually exclusive, and independent projects.
  • Recognize why cash flows and discount rates should be adjusted if project cash flows are more or less risky than normal.
  • Identify alternative approaches to dealing with risk in capital investments.
  • Recognize capital budgeting risk analysis techniques such as sensitivity analysis, scenario planning, and Monte Carlo simulation.
  • Identify the rationale for using real options to mitigate project risk and identify different types of real options available to management.
  • Identify and discuss the problems comparing projects of unequal sizes and/or unequal lives.
Last updated/reviewed: August 5, 2023
13 Reviews (66 ratings)


Anonymous Author
I have been involved with these discussions for years. I have noticed that companies generally stick to a certain way to discuss these items. It was a great refresher for the other metrics that I don't see often.

Anonymous Author
Outstanding course. Walked through each step of the capital budgeting process with precision and high quality information.

Anonymous Author
I really like the courses that this instructor puts together. The course covers a lot of material and was easy to follow.

Member's Profile
Slides are to the point and I didn't lose interest. Good information and good way to be exposed to the CMA exam topics.

Anonymous Author
Good class. Good Supporting Materials. The instructor knows what he is talking about.

Anonymous Author
Course completed, knowledge obtained, amounts calculated, coefficients calculated

Anonymous Author
Solid course with a great overview of capital budgeting concepts. Thank you!

Member's Profile
Excellent explanation of methods and options for selecting Capital projects.

Anonymous Author
A different answer for some of the multiple choice questions are debatable.

Member's Profile
Practical applications and clearly explained. Many tools added to my box.

Member's Profile
This is good Course. I recommend all users to go through this course.

Anonymous Author
Well presented, easy to follow, not dull. Informative and relevant.

Anonymous Author
Good overview and summary of the capital budgeting process.

Course Complexity: Advanced

No advanced preparation or prerequisites are required for this course.

Education Provider Information
Company: Illumeo, Inc., 75 East Santa Clara St., Suite 1215, San Jose, CA 95113
Contact: For more information regarding this course, including complaint and cancellation policies, please contact our offices at (408) 400- 3993 or send an e-mail to .
Instructor for this course
Course Syllabus
  Overview of Capital Budgeting 18:17
  Initial Cash Flows15:01
  Operating Cash Flows11:44
  End of Project Cash Flows3:45
  Discounted Cash Flow Analysis15:12
  Payback and Discounted Payback10:56
  Net Present Value and Internal Rate of Return14:21
  Evaluating and Ranking Capital Projects13:05
  Risk Analysis for Capital Projects18:20
  Risk Mitigation Using Real Options7:44
Continuous Play
  Capital Budgeting2:08:25
Supporting Materials
  Slides: Capital Budgeting PDF
  Capital Budgeting Glossary/IndexPDF
Review And Test