Case Study: Analyzing Capital Budgeting Techniques and Applications

This case study explores the core concepts of capital budgeting, including sensitivity analysis, scenario analysis, break-even analysis, and simulation analysis. It begins with an introduction to capital budgeting and its various techniques, such as Payback Period, Net Present Value (NPV), Accounting Rate of Return (ARR), Internal Rate of Return (IRR), and Profitability Index (PI). The study then delves into sensitivity analysis, explaining how changes in input variables can affect outcomes, with a practical example. Scenario analysis is presented as a method for predicting portfolio valuations under different conditions. Break-even analysis, which helps determine the production volume needed to cover costs, is also discussed, along with its formula and importance. Finally, simulation analysis, a technique for estimating possible outcomes through multiple calculations, is examined. The report concludes by summarizing the importance of integrating these techniques for effective financial decision-making and data management.