Capital Budgeting Analyzer

Profitability Index

• PI calculation methodology
• Capital rationing application
• Project ranking
• Scale-independent comparison
• Wealth maximization
• Resource allocation

Real Options Valuation

• Option identification
• Deferral option valuation
• Expansion option analysis
• Abandonment option value
• Flexibility premium
• Decision tree integration

Sensitivity and Break-Even Analysis

• Single variable sensitivity
• Multi-variable scenarios
• Break-even point determination
• Tornado diagrams
• Spider charts
• Critical success factors

Usage

Project Evaluation

Input: Project cash flows, investment amount, cost of capital
Process: Calculate NPV, IRR, payback, assess against hurdle rates
Output: Investment recommendation, risk analysis, approval documentation

Portfolio Optimization

Input: Multiple project proposals, capital budget, strategic priorities
Process: Rank projects, optimize allocation, identify constraints
Output: Approved project portfolio, ranking rationale, resource plan

Integration

Used By Processes

• Capital Investment Appraisal
• Financial Modeling and Scenario Planning
• Annual Budget Development

Tools and Libraries

• numpy-financial
• scipy
• Decision tree libraries
• Real options models

Best Practices

1. Use consistent discount rates across comparable projects
2. Include all incremental cash flows
3. Consider project interdependencies
4. Document assumptions and risks
5. Perform post-implementation reviews
6. Adjust for project-specific risk