1st Edition

Advanced Capital Budgeting
Refinements in the Economic Analysis of Investment Projects





ISBN 9780415772068
Published December 26, 2006 by Routledge
392 Pages 36 B/W Illustrations

USD $69.95

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Book Description

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.

Table of Contents

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

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Author(s)

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.