What is a CapEx request?

A formal request for money to buy an asset that will be used for more than a year, such as equipment or tooling. It sets out the need, the options, the cost and the return, and goes to the managers whose approval limits cover the amount.

How is simple payback calculated?

Total investment divided by the annual net benefit, which is the yearly benefit minus the yearly running costs. A $120,000 machine that returns $40,000 a year net pays back in 3 years. It ignores the time value of money, which is why NPV is usually asked for too.

How is NPV calculated for a capital project?

Discount each year's net cash flow by dividing it by (1 + r) to the power of the year, where r is the discount rate set by Finance, add them up, and subtract the investment. A positive NPV means the project returns more than the rate Finance requires.

What discount rate should I use?

The one your Finance team sets, often called the hurdle rate or cost of capital. Use the same rate for every request so they can be compared.

Should soft benefits be included in a CapEx request?

Show them, but keep them out of the payback and NPV unless Finance agrees they will turn into cash. The Excel version leaves them out by default and has a switch to include them.

Free template

CapEx request form

A CapEx request (capital expenditure request) is the form used to ask for money to buy equipment or make an improvement that will be used for years, above the amount a manager can approve alone. It explains what is being bought and why, the options that were considered, what it costs and what it will return, so the people approving it can compare it with other requests for the same budget. The two return figures most companies ask for are simple payback, the investment divided by the annual net benefit, and net present value (NPV), each year's net cash flow discounted at a rate set by Finance and added up, minus the investment. Page 1 of this template covers the request, the type, what you want to buy and the problem it solves, the options considered and a cost table split into capital and expense. Page 2 has the benefits marked hard or soft, a five-year cash flow with discount factors, payback and NPV with a worked example, risks, and approvals by level. The Excel version works out the totals, payback, NPV, IRR, the year the discounted cash flow pays back, a cash flow by year for up to 10 years, and which approval levels the amount needs from the limits you enter.

Free to use: print it, copy it and edit it for your team. Enter your name and work email once to download.

Page 1 of the CapEx request form: request fields, type tick boxes, boxes for what you want to buy and the problem it solves and the options considered, and a cost table with capital, expense and total columns. — What and whyOptions consideredCapital and expense costsHard and soft benefitsSimple paybackNPV and cash flowApprovals by level

When to use it

When to use a CapEx request form

For any purchase above your capital limit: equipment, tooling, a building change, software.
When a kaizen or CI project needs money that the area's budget cannot cover.
To compare several requests competing for the same capital budget.
When replacing equipment at the end of its life, to show what repair or doing nothing would cost.

How to fill it in

1
Describe the need
What you want to buy, where it goes and the problem it solves, with numbers: capacity short, hours lost, a safety risk.
2
Show the options
Including doing nothing, repairing, buying used or leasing. Say why the one you chose is better.
3
Cost it from quotes
Equipment, installation, freight, tooling, training and a contingency for what is not yet known. Finance decides which parts are capital and which are expense.
4
Work out the benefits
Per year, each marked hard or soft, with how it was worked out. Subtract running costs such as maintenance and energy.
5
Calculate the return
Simple payback = investment ÷ annual net benefit. NPV at Finance's discount rate over the years the asset will be used.
6
Route it for approval
Each level up to the one whose limit covers the amount. Note any conditions they attach.

A filled-in example

Illustrative, not a benchmark

An example: a machine to bring outsourced machining in-house (illustrative numbers).

Investment $120,000: machine $100,000, installation $12,000, training $3,000, contingency $5,000.
Hard benefit $48,000 a year from outsourcing stopped; running costs $8,000 a year. Annual net benefit $40,000.
Simple payback = $120,000 ÷ $40,000 = 3.0 years.
NPV at 10% over 5 years = $151,631 of discounted net benefit − $120,000 = $31,631. The discounted cash flow pays back in year 4.

The request needed the department manager, plant manager, controller and operations director under that company's limits. The $5,000 of floor space freed was listed as soft and left out of the return.

Common mistakes

Only one option
A request with no alternatives, not even doing nothing, gives the approvers nothing to compare and invites a no.
Counting soft benefits as cash
Freed space or hours that nobody stops paying for do not return money. Show them, but keep them out of the payback and NPV unless Finance agrees.
Forgetting running costs
Maintenance, energy, consumables and the people to run it reduce the net benefit every year.
No contingency
Installation and integration usually cost more than the first quote. Add a contingency for what is not yet known.

Download the template

Free to use: print it, copy it and edit it for your team. Enter your name and work email once to download.

Run this template in LeanSuite

In LeanSuite CapEx projects run through stage gates with engineering and finance approval, and each project records hard and soft savings, cost avoidance and capital spend.

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