Synopses & Reviews
Capital budgeting—the process of planning, analyzing, selecting, and managing capital investments—is one of the most challenging tasks in today's business world. With rapid advances in technology, shorter product life cycles, and global competition, managers now face very difficult decisions about whether long-term investments or capital expenditures are truly worth pursuing.
Capital Budgeting Valuation, part of the Robert W. Kolb Series in Finance, takes a comprehensive look at this complex discipline and shows you what it takes to make better decisions when considering a specific investment project for your organization. Filled with in-depth insights and practical advice, this book contains detailed discussions of essential capital budgeting components, key financial theories as well as empirical support for them, and how firms use these theories to solve problems and create wealth. Along the way, this reliable resource emphasizes how financially sound capital budgeting facilitates the process of value creation.
With contributed chapters from leading academics and practitioners from around the world, this reliable resource provides a synthesis of the current state of capital budgeting and puts a firm's financing decisions in perspective. Divided into seven comprehensive parts, it skillfully:
Reveals the role that corporate strategy and governance can have in investment decisions
Examines various methods of evaluating capital investments and explores capital budgeting under capital rationing
Addresses the estimation of project cash flows and how to adjust for inflation when evaluating capital budgeting projects
Outlines basic risk analysis techniques used in capital budgeting as well as methods for assessing political and country risk
Introduces the concept of a real option and describes the most commonly examined real options and their applications in capital budgeting
Details the different aspects of estimating the appropriate discount rate for use in the capital budgeting process
Capital Budgeting Valuation offers a wealth of useful information that will guide you through the complex maze of capital investment decisions in the real world. If you're looking to gain a better understanding of this discipline, this is the book you need to read.
Synopsis
An essential guide to valuation techniques and financial analysisWith the collapse of the economy and financial systems, many institutions are reevaluating what they are willing to spend money on. Project valuation is key to both cost effectiveness measures and shareholder value.
The purpose of this book is to provide a comprehensive examination of critical capital budgeting topics. Coverage extends from discussing basic concepts, principles, and techniques to their application to increasingly complex, real-world situations. Throughout, the book emphasizes how financially sound capital budgeting facilitates the process of value creation and discusses why various theories make sense and how firms can use them to solve problems and create wealth.
- Offers a strategic focus on the application of various techniques and approaches related to a firm's overall strategy
- Provides coverage of international topics based on the premise that managers should view business from a global perspective
- Emphasizes the importance of using real options
Comprised of contributed chapters from both experienced professionals and academics, Capital Budgeting Valuation offers a variety of perspectives and a rich interplay of ideas related to this important financial discipline.
Synopsis
Capital Budgeting ValuationThe Robert W. Kolb Series in Finance is an unparalleled source of information dedicated to the most important issues in modern finance. Each book focuses on a specific topic in the field of finance and contains contributed chapters from both respected academics and experienced financial professionals. As part of the Robert W. Kolb Series in Finance, Capital Budgeting Valuation provides an engaging look at the key themes surrounding this discipline and shows you what it takes to make more informed decisions when considering potentially costly investment projects for your organization.
Divided into seven comprehensive parts, this timely guide contains detailed coverage that extends from the basic components of capital budgeting and existing theories to their application in an increasingly complex business world. Page by page, the book addresses topics that will put you in a better position to excel at this endeavor, including the various methods of evaluating capital investments, risk management in project finance, estimating the project cost of capital, and the potential benefits of using real options in the capital budgeting process to name a few.
Capital budgeting surveys that reveal the link between theory and practice are also included, and based on the premise that managers should view business from a global perspective, important international issues associated with capital budgeting are discussed as well.
Filled with in-depth insights and expert advice, Capital Budgeting Valuation offers a variety of perspectives and a rich interplay of ideas related to this important financial discipline.
About the Author
H. Kent Baker, PhD, CFA, CMA, is University Professor of Finance and Kogod Research Professor at the Kogod School of Business at American University, Washington, D.C. He has published extensively in leading academic and professional finance journals including the
Journal of Finance, Journal of Financial and Quantitative Analysis, Financial Management, Financial Analysts Journal, and
Journal of Portfolio Management. Recognized as one of the most prolific authors in finance during the past fifty years, Professor Baker has consulting and training experience with more than 100 organizations and has been listed in fifteen biographies.
Philip English is an Assistant Professor of Finance and Real Estate at the Kogod School of Business, American University. He currently serves as Director of the Master of Science in Finance and Master of Science in Real Estate programs. Before pursuing a doctorate, English worked as the primary financial officer and director of product development for Campbell Classics, a Virginia-based manufacturing firm. Professor English's research interests focus on the role of the legal environment in emerging markets, corporate governance, and mutual fund regulation. He has published in the Journal of Financial Research, Journal of Corporate Finance, Journal of Law and Economics, and Emerging Markets Review.
Table of Contents
Acknowledgments ix1 Capital Budgeting: An Overview 1
H. Kent Baker and Philip English
PART I Foundation and Key Concepts 17
2 Corporate Strategy and Investment Decisions 19
Daniel Ferreira
3 Corporate Governance and Investment Decisions 37
Fodil Adjaoud, Dorra Charfi, and Lamia Chourou
PART II Capital Investment Choice 57
4 Measuring Investment Value: Free Cash Flow, Net Present Value, and Economic Value Added 59
Tom Arnold and Terry Nixon
5 Alternative Methods of Evaluating Capital Investments 79
Tom Arnold and Terry Nixon
6 Capital Rationing for Capital Budgeting 95
Alexander Brüggen
7 Analyzing Foreign Investments 111
Wim Westerman and John Henry Hall
8 Postcompletion Auditing of Capital Investments 131
Jari Huikku
9 Capital Budgeting Techniques in Practice: U.S. Survey Evidence 151
Tarun K. Mukherjee and Naseem M. Al Rahahleh
PART III Project Cash Flows and Inflation 173
10 Estimating Project Cash Flows 175
Kyle Meyer and Halil Kiymaz
11 Capital Budgeting and Inflation 197
Ignacio V´elez-Pareja and Joseph Tham
PART IV Risk and Investment Choice 215
12 Basic Risk Adjustment Techniques in Capital Budgeting 217
John H. Hall and Wim Westerman
13 Capital Budgeting with Political/Country Risk 241
Yacine Belghitar and Ephraim Clark
14 Risk Management in Project Finance 259
Stefano Gatti and Stefano Caselli
15 Risk Simulation Concepts and Methods 279
Tom Arnold and David North
PART V Real Options and Project Analysis 299
16 Real Options Analysis: An Introduction 301
Tom Arnold and Bonnie Buchanan
17 Applications of Real Options Analysis 321
Tom Arnold and Bonnie Buchanan
PART VI Estimating the Project Cost of Capital 337
18 Cost of Capital: An Introduction 339
Octavian Ionici, Kenneth Small, and Frank D’Souza
19 Using the Capital Asset Pricing Model and Arbitrage Pricing Theory in Capital Budgeting 363
S. David Young and Samir Saadi
20 Financing Mix and Project Valuation: Alternative Methods and Possible Adjustments 381
Alex Pierru and Denis Babusiaux
PART VII Special Topics 403
21 Capital Budgeting for Government Entities 405
Davina F. Jacobs
22 Decision Making Using Behavioral Finance for Capital Budgeting 421
Yuri Biondi and Giuseppe Marzo
23 Merger and Acquisition Pricing: The Valuation of Synergy 445
Rainer Lenz
24 Multicriteria Analysis for Capital Budgeting 463
Fernando R. Fernholz
Answers to Discussion Questions 483
Index 507