Capital Budgeting
Deciding which long-term investments to fund (factories, tech, product lines).
Concentrates scarce capital on the highest-return uses.
Rank all proposed projects by NPV/IRR under a fixed capital budget. Cawan's Shoes 2026 budget = $80M. Requests totaling $145M: • Vietnam factory expansion — $40M invest, NPV $12.4M, IRR 18% ✓ FUND • DTC website replatform — $18M, NPV $9.1M, IRR 22% ✓ FUND • AI demand-forecasting — $6M, NPV $7.8M, IRR 41% ✓ FUND • 25 new flagship stores — $50M, NPV $4.2M, IRR 11% ✓ FUND (partial: 8 stores, $16M) • Corporate HQ remodel — $15M, NPV −$2.1M, IRR 6% ✗ REJECT (below 9% WACC) • Kids-line launch — $16M, NPV $1.0M, IRR 10% ⏸ DEFER to 2027 Funded $80M produces expected NPV of ~$33M — every dollar earns 41¢ of value.
Poor budgeting = capital wasted on pet projects that don't clear WACC.