THE BARATELLI INSTITUTE · Mentoring at Scale
CAPITAL ALLOCATION DECISION

The capex memo every CFO actually uses.

NPV, IRR, MIRR, payback, profitability index. Tax-adjusted depreciation with MACRS, §179, and §168(k) bonus. Tornado sensitivity. Three-scenario build. Strategic-fit scorecard. And the post-implementation review template captured at the moment of decision — so the variance shows up at year one and year three. Built to be the document you email to the audit committee.

7
Decision metrics
3
Scenarios auto-built
5
Strategic-fit dimensions
PIR
Captured at t=0
YOUR CAPEX ANALYSIS
1
The project
2
Cash flows
3
Tax & depreciation
4
Strategic fit
5
Decision
STAGE 1 OF 5

Project basics

The asset, the life, the cost of capital. Six inputs.

Asset + freight + installation + initial training. Everything capitalized at year zero.
$
Economic life of the project. Drives the cash-flow horizon and depreciation schedule.
Estimated disposal value, net of removal costs. Many CFOs leave this at zero unless an active resale market exists.
$
Inventory + receivables increase needed to operate the asset. Released at end of life.
$
Most companies use WACC — typically 8-12% for mid-market. Hurdle rates often add 200-400 bps. The committee that approves capex is the audience for this number.
%
Rate at which interim cash flows compound. Often the same as WACC; some firms use the cost of debt (~5-7%) for conservatism.
%
STAGE 2 OF 5

Annual cash flows

The benefit side: revenue increase, cost savings, and any incremental operating cost from the asset itself. Edit each year — the analysis adapts to non-flat curves.

Flat (steady-state)
Same benefit each year. Most defensible default.
Ramp (slow start)
Year 1 = 50%, Year 2 = 80%, full from Year 3.
Declining benefit
Tech aging or market erosion: 100%/90%/80%/70%...
Growing benefit
Demand-driven: +5% per year.
New revenue this asset enables, before discounting. Apply curve above to project subsequent years.
$
Reduced labor, scrap, energy, downtime, third-party spend.
$
Maintenance contracts, software licenses, additional staffing. Constant dollars per year.
$
Applied to the per-year benefits. 0% = flat, 3% = mild inflation match, 5% = growth assumption.
%

Per-year cash flow detail

STAGE 3 OF 5

Tax position & depreciation method

The depreciation tax shield is often 20-30% of the after-tax NPV. Get the method right.

Federal + state. Pass-throughs typically 30-37%; C-corps 25-28% combined. Affects the depreciation tax shield.
%
Office equipment: 5 yr · Computers: 5 yr · Most machinery: 7 yr · Land improvements: 15 yr · Buildings: 39 yr (commercial). Different from useful economic life.
$1.25M annual cap (2025), phased out dollar-for-dollar above $3.13M total §179 property placed. Available on most tangible business property.
Post-OBBBA: 100% bonus restored for property acquired and placed in service after Jan 19, 2025. Pre-OBBBA: 60% (2024), 40% (2025), 20% (2026), 0% (2027). Applies to the basis remaining after §179.
State conformity warning. Many states (CA, FL, NY, IL, MA, NJ, PA, NC, NH, OH) decouple from federal bonus depreciation, §179, or both. The federal benefit shown here may not flow through to state. The CFO Guide has the state-by-state conformity table; this tool models federal only.

Projected depreciation schedule

STAGE 4 OF 5

Strategic-fit scorecard

A 17% IRR doesn't get approved if it doesn't fit the strategy. Score five dimensions on a 1–5 scale. Weights are typical for mid-market manufacturing; adjust if your firm uses a different framework.

Strategic alignment
Does this advance the stated 3-year strategic plan? 1 = unrelated; 5 = directly enables a stated strategic goal.
4
Customer impact
Improves customer outcome — quality, lead time, response, choice. 1 = no customer-side benefit; 5 = a customer-stated requirement.
3
Operational risk reduction
Reduces risk of failure, downtime, single-point-of-failure exposure, key-person dependency. 1 = adds risk; 5 = removes a known risk.
4
Employee impact (recruitment / retention)
Effect on the workforce — better tools, safety, working conditions, training, retention. 1 = degrades; 5 = materially improves.
3
Regulatory / compliance / ESG
Required by a regulator, supports a contractual obligation, or materially advances an ESG commitment. 1 = creates exposure; 5 = mandatory or required.
3
Default weights: Strategy 25% · Customer 25% · Risk 20% · Employee 15% · Regulatory 15%. The weighted score (out of 5) plus the financial metrics drives the recommendation. A regulatory-driven project with a 1.0 financial score and a 5.0 strategic score still gets a "go" — and the tool will flag that.
STAGE 5 OF 5 · YOUR DECISION

Result for your project

RECOMMENDATION
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Financial metrics

Sensitivity tornado (top 5 inputs)

±20% on each input. The longer the bar, the more NPV depends on getting that input right.

Three-scenario build

Strategic-fit scorecard

Post-implementation review (PIR) template

The single discipline most CFOs are missing. Capture the assumptions now, lock them, and at year-1 and year-3 the actual results plug in. The variance report writes itself.

PIR — Year 1 Lock-In
PIR — Year 3 Lock-In

Recommendations to strengthen the case

PAIRS WITH
CFO & Controller's Guide — chapter on capital allocation discipline.
The CFO Guide chapters on capital budgeting, post-implementation review (PIR), and the depreciation tax shield cover this in operational depth — including the audit-defense file structure, the board-deck format, and the variance-tracking discipline. Subscribe to the library →
FROM THE CFO & CONTROLLER'S GUIDE

The full capital-allocation chapter — by email.

The complete capex playbook: hurdle-rate setting, post-implementation review, the depreciation-shield cheat-sheet, and the board-deck format that gets capex approved.

This tool models the financial mainline of capital-expenditure justification — NPV, IRR, MIRR, payback, MACRS depreciation, §179 + bonus interaction, sensitivity, and three-scenario build — at the level of detail a mid-market CFO uses for a board memo. It does not (yet) model real-options valuation (option to defer, expand, abandon — Black-Scholes), state-by-state depreciation conformity, deferred tax accounting (ASC 740), or financing structure (lease-vs-buy, debt mix). Use this as the conceptual baseline and engage your CFO/controller and CPA before relying on the result. This is not tax advice.
WANT THE METHODOLOGY BEHIND THIS TOOL?
This calculator is one chapter of CFO & Controller's Reference Guide.
The tool gives you the answer. The guide gives you the argument — the case law, the worked examples, the negotiation playbook, the cross-check tables, the exception cases. Read the chapter and you can defend your number to a board, a buyer, an examiner, or a counterparty.
The methodology behind this calculator is in Ch 14 Capital Allocation & CapEx Discipline of the reference guide.
See the Guide → Browse all 22 guides
PROFESSIONAL DISCLAIMER · PLEASE READ

Educational and informational purposes only. This calculator and any output it produces are intended solely for general educational and decision-support purposes. They do not constitute investment, tax, legal, accounting, appraisal, lending, insurance, or any other professional advice, and they do not create a fiduciary, attorney-client, accountant-client, or advisor-client relationship of any kind.

Estimates based on your inputs. All results are estimates derived from the data and assumptions you provide. Tax law, accounting standards, regulations, market conditions, and the specific facts of your situation can materially change the answer. The Baratelli Institute, its affiliates, and any co-branding professional make no warranty of accuracy, completeness, currency, or fitness for any particular purpose, and disclaim all liability for decisions made in reliance on the output.

Consult your own qualified professionals. Before acting on anything calculated here, consult your own attorney, CPA, financial advisor, appraiser, lender, or other qualified professional licensed in your jurisdiction who has reviewed your specific facts and applicable current law. The Baratelli Institute is a publisher of practitioner reference material. It is not a registered investment adviser, broker-dealer, law firm, accounting firm, appraisal firm, or lender.

Co-branded versions: If a professional advisor's name and contact information appear on this tool, that advisor has elected to make the tool available to clients as a courtesy. Inclusion of an advisor's name does not constitute the advisor's endorsement of any specific result, nor does it transfer professional responsibility for the underlying methodology to that advisor. The disclaimer above applies regardless of co-branding.