1st Edition
Advanced Capital Budgeting Refinements in the Economic Analysis of Investment Projects
Written by authors of established texts in this area, this book is a companion volume to the classic The Capital Budgeting Decision. Exploring this key topic in corporate finance the authors examine the complexities of capital budgeting as well as the opportunities to improve the decision process where risk and time are important elements.
Containing ‘Global Aspects’ sections that cover cross-border decision-making, this book also emphasizes the application of capital budgeting techniques to a variety of issues, including the hugely significant ‘buy versus lease’ decision that cost corporations billions each year.
It gives in-depth coverage to:
- real options - the value of a project must take into consideration the flexibility that it provides management, acknowledging the option of making decisions in the future when more information is available
- decomposing cash flows - a project consists of many series of cash flows and each series deserves its own specific risk-adjusted discount rate. Decomposing the cash flows of an investment highlights the fact that while managers are generally aware that divisions and projects have different risks, too often they neglect the fact that the cash flow components may also have different risks, with severe consequences on the quality of the decision-making.
Designed to assist those making business decisions at all levels, this volume is essential reading for all those working in or studying capital budgeting.
Part 1: Capital Budgeting and Valuation Under Certainty 1. The State of the Art of Capital Budgeting 2. Amounts Discounted and Discount Rates Part 2: Capital Budgeting and Valuation Under Uncertainty 3: Capital Budgeting with Uncertainty 4: Elements of Time and Uncertainty 5. The State Preference Approach 6. Resolution of Uncertainty 7. Diversification and Risk Reduction 8. Projects with Components Having Different Risks 9. Practical Solutions to Capital Budgeting with Uncertainty Part 3: Option Theory as a Capital Budgeting Tool 10. Real Options and Capital Budgeting Part 4: Applications of Capital Budgeting 11. Growth Constraints 12. The Valuation of a Firm 13. Using Economic Income (Residual Income) for Valuation 14. Present-Value Accounting 15. Performance Measurement and Managerial Compensation 16: Fluctuating Rates of Output 17. Investment Decisions with Additional Information 18. Investment Timing 19. Buy versus Lease
Biography
Harold Bierman, Jr., is the Nicholas H. Noyes Professor of Business Administration at the Johnson Graduate School of Management, Cornell University.
Seymour Smidt is Professor Emeritus at the Johnson Graduate School of Management, Cornell University.
