Chapter 5: Capital Investments and Capital Allocation

In this section

• Types of Capital Projects
  Types of Capital Projects (CFA Level 1): Key Considerations in Identifying Capital Project Types, Expansion Projects, and Replacement Projects. Key definitions, formulas, and exam tips.
• Discounted Cash Flow Analysis (NPV, IRR, MIRR, PI)
  Discounted Cash Flow Analysis (NPV, IRR, MIRR, PI) (CFA Level 1): Net Present Value (NPV), Why NPV Matters, and Defining NPV. Key definitions, formulas, and exam tips.
• Project Interactions and Real Options
  Project Interactions and Real Options (CFA Level 1): Understanding Project Interactions, Types of Projects and Their Interactions, and Why Interactions Matter. Key definitions, formulas, and exam tips.
• Common Pitfalls in Capital Budgeting
  Common Pitfalls in Capital Budgeting (CFA Level 1): Overoptimistic Forecasts, Inclusion of Sunk Costs, and Misalignment with Strategic Objectives. Key definitions, formulas, and exam tips.
• Other Project Evaluation Methods (Payback Period, Discounted Payback)
  Other Project Evaluation Methods (Payback Period, Discounted Payback) (CFA Level 1): Payback Period Basics, Payback Period Formula, and Discounted Payback Period. Key definitions, formulas, and exam tips.
• Capital Rationing and Hurdle Rate Determination
  Capital Rationing and Hurdle Rate Determination (CFA Level 1): Understanding Capital Rationing, Internal vs. External Constraints, and Why Ration?. Key definitions, formulas, and exam tips.
• Sensitivity and Scenario Analysis in Capital Budgeting
  Sensitivity and Scenario Analysis in Capital Budgeting (CFA Level 1): Foundations of Risk Assessment in Capital Budgeting, Sensitivity Analysis, and What Is Sensitivity Analysis?. Key definitions, formulas, and exam tips.
• Post-Audit Reviews of Capital Investments
  Post-Audit Reviews of Capital Investments (CFA Level 1): Purpose of Post-Audit Reviews, Key Concepts to Remember, and Importance of Variance Analysis. Key definitions, formulas, and exam tips.