Capital Budgeting Walkthrough

Step-by-step project evaluation with NPV, IRR, and sensitivity analysis

Project Inputs
Key Concept: Capital budgeting evaluates whether a project creates value. We calculate operating cash flows, adjust for working capital, and discount at the appropriate cost of capital.
Annual Cash Flow Calculation
EBIT = Revenue - Operating Costs
Taxes = EBIT x Tax Rate
Net Income = EBIT - Taxes
Operating Cash Flow = Net Income + Depreciation (add back non-cash charge)
Free Cash Flow = Operating Cash Flow - CapEx - Change in Working Capital
Year-by-Year Analysis
Year Revenue Operating Costs Depreciation EBIT Taxes Net Income Operating Cash Flow Working Capital Change Free Cash Flow Discount Factor Present Value
Project Valuation Results
Net Present Value
$0
Internal Rate of Return
0%
Profitability Index
0.00
Payback Period
--
Decision Rules:
- NPV > 0: Accept the project (adds value)
- IRR > Discount Rate: Accept the project
- PI > 1: Accept the project (value per dollar invested)
Sensitivity Analysis -- Tornado Chart

Shows which input has the largest impact on NPV when varied +/- 10%

Cumulative Cash Flow Chart

About This Model:

This capital budgeting tool walks through the complete evaluation process: calculating operating cash flows, adjusting for working capital, and computing NPV and IRR. The sensitivity analysis reveals which assumptions matter most for project viability. Real projects require careful judgment about growth rates, cost stability, and discount rate appropriateness.