Investment appraisal and financial decisions:
Gespeichert in:
| Hauptverfasser: | , |
|---|---|
| Format: | Buch |
| Sprache: | Undetermined |
| Veröffentlicht: |
London [u.a.]
Internat. Thomson Business Press
1999
|
| Schlagworte: | |
| Online-Zugang: | Inhaltsverzeichnis |
| Beschreibung: | XV, 647 S. |
| ISBN: | 1861522576 |
Internformat
MARC
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Datensatz im Suchindex
| _version_ | 1804138769654218752 |
|---|---|
| adam_text | Contents
Preface xiii
Introduction 1
The nature of financial decisions 1
The decision process 2
Financial decision making 4
Technology and financial decision making 9
Summary 10
Notes 10
Quickie questions 11
1 Corporate objectives, management objectives and 12
corporate governance
Wealth maximization and the company 12
Ownership and control 14
Regulation of the relationships between directors and 14
shareholders
Incentive scheme criteria 20
Conclusion 23
Summary 24
Notes 25
Further reading 25
Quickie questions 26
Problems 26
2 Strategic planning and the finance function 27
Introduction 27
Strategic business planning 28
Competitive analysis 30
Investment and financing strategy 31
The role of financial management 32
The firm in the economy 35
Risk and return 37
Summary 38
Notes 39
Contents v
Further reading 39
Quickie questions 39
Problems 40
3 Traditional methods of investment appraisal 41
Introduction 41
The payback method 42
The return on capital employed 48
Summary 52
Notes 53
Further reading 55
Quickie questions 55
Problems 56
4 The single-period investment consumption decision model 58
Introduction to the model 58
The time value of money 60
The basic graphical analysis 61
Introduction of capital markets 63
Payback and ROCE 70
Summary 70
Notes 71
Further reading 74
Quickie questions 74
Problem 74
5 The discounted cash flow approach 76
Net present value 76
Alternative interpretations of NPV 82
Internal rate of return 86
Discounted payback 92
Truncated NPV 93
Summary 93
Appendix: compounding and discounting 94
Notes 98
Further reading 99
Quickie questions 99
Problems 100
6 Net present value and internal rate of return developed 103
NPV and project interdependence 103
NPV and mutually exclusive projects 103
IRR rule and interdependent projects 107
Extending the time horizon 116
Multiple IRRs 117
The modified IRR 122
The replacement cycle problem 124
Summary 127
Notes 128
Further reading 129
Quickie questions 129
Problems 130
7 Project appraisal cash flows 132
Investment appraisal and inflation 132
Inflation and the IRR rule 137
Investment appraisal and taxation 138
Financing cash flows 139
Investment appraisal and the relevant cash flow 143
Summary 147
Appendix: the UK corporate tax system 148
Notes 148
Further reading 149
Quickie questions 150
Problems 150
8 Capital market imperfections 154
Capital rationing 154
Single-period capital rationing 158
Multi-period capital rationing 163
Lend-borrow interest differentials 173
Summary 176
Appendix: linear programming 177
Notes 178
Further reading 179
Quickie questions 180
Problems 180
9 Traditional and technological approaches to risk 183
Introduction 183
Expected net present value 183
The abandonment decision 190
Sensitivity analysis 194
Non-annuity cash flows 196
The risk-adjusted discount rate 198
Use of the normal distribution 201
Simulation 203
Summary 204
Notes 205
Further reading 206
Quickie questions 206
Problems 207
10 Risk and expected return 211
Risk and return 211
The expected utility model 213
Risk, return and the investment decision 219
Summary 227
Notes 228
Further reading 229
Quickie questions 229
Problems 230
11 Portfolio theory 231
Two-asset portfolios 231
Risk and expected return 232
The risk-reduction effect 234
Multi-asset portfolios 238
Introduction of a risk-free investment 241
The capital market line 247
Contents vii
Diversification within companies 252
Summary 253
Notes 254
Further reading 255
Quickie questions 256
Problems 256
12 The capital asset pricing model 259
The security market line 259
The CAPM expression 263
The beta value 266
The validity of the CAPM 274
Arbitrage pricing theory (APT) 279
Betas and project investment appraisal 281
Summary 284
Appendix: The security market line 285
Notes 288
Further reading 289
Quickie questions 289
Problems 290
13 The valuation of options 293
Introduction 293
Options and futures contracts 294
Intrinsic value 295
The gearing effect 299
Limiting exposure to downside risk 299
Writing options 303
The market value of an option 305
Black—Scholes option valuation model 307
The building blocks of investment 309
Put-call parity theorem 314
The problem of dividends 317
The binomial model 319
Delta risk and the hedge ratio 321
Summary 322
Appendix: the area under the normal curve 323
Notes 325
Further reading 325
Quickie questions 326
Problems 326
14 Interest rate risk management 327
Introduction 327
The money markets 328
Forward forward loans 329
Forward rate agreements 330
Interest rate guarantees 333
Option contract markets 335
Interest rate futures 336
Caps, collars and floors 344
Interest rate swaps 345
Summary 348
Notes 349
Further reading 350
Quickie questions 350
Problems 350
15 Market efficiency and the term structure of interest rates 352
Introduction 352
Market efficiency 352
Market efficiency and share dealing 355
The empirical evidence of EMH 357
The term structure of interest rates 362
Pure expectations hypothesis 366
Summary 372
Notes 373
Further reading 374
Quickie questions 374
Problems 375
16 The cost of company capital 376
The financing decision 376
The cost of equity capital 377
Expected return, dividends and market price 379
Applying the dividend valuation model 382
CAPM and the cost of equity capital 389
CAPM versus the DVM 391
The cost of debt capital 393
Cost of preference shares 405
Convertible debt 406
Summary 409
Appendix 410
Notes 411
Further reading 413
Quickie questions 413
Problems 414
17 The weighted average cost of capital 417
The project discount rate 417
The calculation of Ko 420
The WACC and project risk 424
Differing corporate and private costs of debt 427
Summary 433
Notes 434
Further reading 434
Quickie questions 434
Problems 435
18 The capital structure decision in a no-tax world 438
Introduction 438
An optimal capital structure 438
Business and financial risk 442
The arbitrage proof 446
Summary 453
Notes 454
Contents ix
Further reading 454
Quickie questions 456
Problems 456
19 Capital structure in a world with tax 457
Taxation and capital structure 457
Using the M and M equations 462
M and M in the real world 466
Further views on capital structure 471
Corporate and personal taxes 473
Summary 476
Notes 477
Further reading 478
Quickie questions 478
Problems 479
20 The capital structure decision in practice 482
The gearing ratio calculation 482
Earnings per share and gearing 484
Degree of operating gearing 487
Summary 491
Further reading 491
Quickie questions 492
Problems 492
21 Investment and financing decision interactions 495
Company valuation and investment appraisal 495
The dividend and interest valuation model 496
Adjusted present value model 496
The M and M valuation model 497
The traditional valuation model 497
Approaches to investment appraisal 498
Asset betas and gearing 503
Risk-adjusted WACC 509
Lease or purchase decision 512
Summary 516
Notes 516
Further reading 517
Quickie questions 517
Problems 518
22 The dividend decision 521
Dividend policy in perfect capital markets 521
Traditional view of the dividend decision 525
Dividend policy in an imperfect market 528
Dividends as signals 530
Summary 533
Notes 533
Further reading 534
Quickie questions 535
Problems 535
23 Foreign exchange markets and rates 537
Introduction 537
Exchange rates 537
Foreign exchange markets 542
Exchange rate systems - from Bretton Woods to EMU 547
Determinants of FX rates 549
Summary 554
Notes 555
Further reading 555
Quickie questions 555
Problems 556
24 Foreign exchange risk management 557
Definitions 557
Transaction risk hedging 558
FX futures contracts 563
Forward vs. futures 568
FX options contracts 568
Setting up an option hedge 571
Valuation of options 575
Contingent exposure to FX risk 576
Traded options vs. OTC options 577
Summary 578
Notes 579
Further reading 579
Quickie questions 579
Problems 580
25 Overseas capital investments 583
Introduction 583
The project cash flows 585
The project discount rate 588
Translation risk 594
Economic risk 596
Country/political risk 599
Management charges and transfer pricing 600
Summary 601
Notes 602
Further reading 602
Quickie questions 603
Problems 603
Tables
Compounding and discount tables (including mid-point
discount tables) 606
Area under the normal curve 610
Natural logarithms 611
Answers to quickie questions 612
Index 643
Contents xi
|
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| title | Investment appraisal and financial decisions |
| title_auth | Investment appraisal and financial decisions |
| title_exact_search | Investment appraisal and financial decisions |
| title_full | Investment appraisal and financial decisions Steve Lumby and Chris Jones |
| title_fullStr | Investment appraisal and financial decisions Steve Lumby and Chris Jones |
| title_full_unstemmed | Investment appraisal and financial decisions Steve Lumby and Chris Jones |
| title_short | Investment appraisal and financial decisions |
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