Capital Budgeting Simulation

Turn capital budgeting into a real investment decision

Students apply NPV, IRR, profitability index and payback to appraise competing projects, then allocate a fixed budget across a portfolio.

1 - 2-hour single-player simulation
Project appraisal and capital rationing
In-class, online or hybrid delivery

From project appraisal to capital rationing

The Capital Budgeting Simulation is a one to two hour, single-player business simulation in which each student takes the role of a CFO and decides which investment projects a company should fund. Students appraise competing projects using Net Present Value, Internal Rate of Return, Profitability Index and Payback Period, then allocate a fixed $10 million budget across a portfolio.

Analyse competing projects

Calculate NPV, IRR, profitability index and payback from each project's cash flows and discount rate.

Allocate limited capital

Choose a portfolio while remaining within a fixed investment budget.

Explain and compare the decision

Submit reasons, review the optimal outcome and compare the value generated.

At a glance

Duration

1 - 2 hours

Run the complete teaching experience in one session or divide it across shorter sessions.

Format

Single-player simulation

Each student makes decisions independently from the perspective of a CFO.

Level

UG, PG and MBA

Suitable for introductory, business, corporate, managerial and financial management courses.

Professor tools

Timeline and session controls

Manage students, adjust stage timings, control progression and monitor student inputs.

Prerequisites

Beginner accessible

Suitable for beginners, with video guidance, case information, task checklists, pop-ups and tooltips.

Delivery

In class, online or hybrid

The web-based simulation supports in-person, remote, blended and homework-supported delivery.

Assessment

Optional individual evidence

Platform data can support professor review of calculations, decisions, portfolio value and comparative results.

Course Fit

Fits core finance modules

Designed for Intro to Finance, Business Finance, Corporate Finance, Financial Management, Managerial Finance, and Business and Management courses.

Four measures for better capital budgeting decisions

Students evaluate investment opportunities using NPV, IRR, payback period and profitability index, learning how to combine financial calculations with risk judgement and capital constraints to select the strongest project portfolio.

Capital Budgeting simulation gameflow and stages

1. Intro

5 minutes. Students watch the five-minute introductory video and review the simulation purpose, CFO perspective, stage sequence and criteria for success. When Play is active, the simulation progresses automatically. The professor may also move the class manually through the timeline.

2. Project Selection (Analysing):

30 minutes. Students examine three investment opportunities and review each project’s description, discount rate, expected cash flows and associated risks. They calculate Net Present Value, Internal Rate of Return, Profitability Index and Payback Period, select the most viable project and submit a reasoned justification. The professor can monitor inputs and coach without revealing the correct project.

3. Project Selection Outputs (Debriefing):

5 minutes. Students review the correct project selection and the reasons behind it. They compare their performance with other participants and identify differences in calculation or interpretation. The professor can use the output to address common errors before the portfolio-allocation stage.

4. Invest Capital (Investing):

30 minutes. Students receive a $10 million budget and eight independent projects, a capital rationing problem, and choose the combination that maximises total NPV within the budget. They review each project’s investment requirement, expected cash flows, NPV, IRR, Profitability Index and Payback Period, then select a combination within the budget and provide reasons for their choices.

5. Invest Capital Outputs (Debriefing):

No limit. Students review the value generated by their portfolio, their leaderboard position, the optimal portfolio and project-level results. The professor can use the outputs to discuss capital rationing, portfolio value and the reasoning behind different allocations.

Why professors use it

Interpret the measures together

Students calculate NPV, IRR, PI and payback, then interpret them together to justify one recommendation, including where NPV and IRR disagree."

Make capital rationing concrete

The portfolio stage shows why a collection of individually attractive projects may not create the strongest portfolio. Students must consider combinations, available capital and total value creation.

Simple to set up and run

Once the session is set up, the simulation guides students through every stage from start to finish. Professors can monitor progress and step in when needed, without having to manage each activity or provide constant instruction.

What the experience looks like

The Professor Admin Panel brings the timeline, session controls, student management and teaching guidance into one place. The Student Interface leads students from project appraisal to capital rationing and final performance review.

Control the simulation timeline

The timeline shows the complete stage sequence and allocated timings. Professors can select a stage to move all students to that point or use Adjust to change the time available.

Access the professor guidance

The Admin Guide provides Setup & Facilitation guidance, Teaching Notes and the Gameflow Diagram. The First Time User Guide is a useful tool for first time users.

Run and manage the session

Play starts automatic progression. Pause holds the timer in the current stage. Stop locks student screens.

Case materials students work with

Every student receives the same project information. The materials combine business context, projected cash flows, discount rates and project-specific qualitative risks so students must interpret the case before committing capital.

Project case briefs

Students open each project case to understand the investment, its commercial purpose and the risks behind the financial projections before completing the appraisal.

Financial and comparison data

Discount rates, investment requirements, cash-flow projections and appraisal measures support both the single-project decision and the later portfolio rationing.

5 mins

Student Intro Video

A short introduction that prepares students for the CFO role, explains the simulation stages and outlines how project appraisal measures will inform their investment and capital rationing decisions.

Assess investment judgement, not just the final portfolio

Assessment is optional. Professors may run the simulation as an ungraded applied activity focused on practice, comparison and discussion. Where assessment is appropriate, platform data can support academic judgement by showing calculations, decisions, portfolio values and comparative results. Simulation scores should support, not automatically replace, the professor’s academic judgement.

What professors can assess

• Accuracy of the capital-budgeting calculations
• Quality of the project-selection decision

How to interpret the score

• Compare the project selected with the best possible choice.
• The portfolio score is the total NPV of all the projects selected.

What professors can assess:

Accuracy of the capital-budgeting calculations: Review whether students calculate and interpret NPV, IRR, Profitability Index and Payback Period accurately. A correct final choice does not by itself confirm that the underlying calculations were completed correctly.
Quality of the project-selection decision: The Project Selection stage has a documented optimal answer based on the combined financial measures and project risks. Review how the student reached the decision, including whether the evidence was interpreted together rather than relying on one measure.
Optional individual assessment report: Students may be asked to submit a short CFO investment report outside the platform once they have reviewed and reflected on their results and scores. This is not automatically captured or graded by the simulation.

How to interpret the score:

Compare the project selected with the best possible choice: Compare the first decision with the correct Project Selection answer, while also reviewing the calculations and justification behind it.
The portfolio score is the total NPV of all the projects selected: The Invest Capital leaderboard is determined by the total NPV generated by the selected portfolio.

Set up the session in minutes, then let the simulation run

The simulation can progress automatically after Play is selected or be advanced manually through the timeline. Coaching is optional, allowing professors to intervene only when clarification or reflection would add value.

Step 1

Add and manage students

Use Player Management to add the students taking part. Every student completes the simulation individually from the same CFO perspective, so no team formation or role allocation is required.

Step 2

Configure the stage timings

Review the five-stage timeline and use Adjust to increase or reduce the time assigned to individual stages.

Step 3

Start and control the simulation

Select Play to begin the timer and support automatic progression. Pause is useful for a break or class-wide clarification. Stop freezes student activity and locks screens.

Step 4

Monitor progress and prepare the debrief

Use Live Monitoring to review inputs and decision tables. Coach selectively without directing students towards the preferred answer. Use the final leaderboard, portfolio values and optimal portfolio to structure the debrief.

Professor Resources

Everything needed to prepare, run and debrief the Capital Budgeting Simulation is organised within the resources below.

Net Present Value
Internal Rate of Return
Profitability Index
Payback Period
Cash-flow analysis
Risk management
Discount-rate interpretation
Project appraisal
Capital rationing
Portfolio NPV
Investment decision-making

Creators of the Capital Budgeting Simulation

These industry professionals were involved in the inception, creation, development, testing and optimisation of the simulation.

Investment banking experience across UBS, Morgan Stanley, and Deutsche Bank. Studied Mathematics at Saratov University.

Andrey Simonov

Former Practice Specialist in McKinsey’s Corporate Finance team in Germany and Finance professor at Aberdeen University.

Gerhard Kling

Worked in the finance department of Precomp Tools. Studied Engineering and holds an MSc in Corporate Finance from Bayes.

Aatmay Upponi

Assistant Professor of Finance at Tilburg University, teaching corporate finance courses. Also lectures at TIAS Business School.

Fatemeh Hosseini

Senior investment banker at Morgan Stanley with experience in M&A and TMT coverage across New York and San Francisco. Studied business at Kellogg.

Bharat Venugopal

FAQs

A case study normally asks students to analyse or recommend a decision using a fixed narrative. The simulation requires each student to commit capital, submit a project choice and construct a constrained portfolio. They then see their result against the documented answer and the rest of the class. Professors gain evidence of the calculations, selections and reasoning that produced the decision, rather than receiving only a written summary of what the student thinks someone else should do.

Longer simulations may run across several years and include many investment proposals, which can suit a dedicated corporate-finance elective with several weeks available for capital allocation. The Finsimco Capital Budgeting Simulation focuses on project appraisal and portfolio allocation in a single one- to two-hour session. It is therefore suitable for a module that has one teaching slot for NPV, IRR, profitability index, payback and capital rationing, while still giving students a complete decision and comparable outcome.

Capital rationing occurs when a company has more attractive projects than it has money available to fund. It drives the second decision in the Capital Budgeting Simulation, where students face eight projects and a $10 million budget that cannot cover all of them. They must compare combinations rather than rank projects one by one. In doing so, they discover that a collection of individually attractive projects can create less total value than a different portfolio assembled with the same limited capital.

Portfolio value is measured by the sum of the NPVs of the projects a student funds. NPV estimates the cash value an investment adds, while IRR expresses a percentage return without showing how much capital the project absorbs. A small project with a very high IRR can therefore add less value than a larger project with a lower IRR. Students often see this directly when a portfolio built around the highest IRRs produces a lower score than another combination that maximises total NPV within the budget.