Advanced Capital Budgeting - Refinements in the Economic Analysis of Investment Projects (Hardcover)

This book is a companion volume to the author's classic The Capital Budgeting Decision and explores the complexities of capital budgeting as well as the opportunities to improve the decision process where risk and time are important elements.

There is a long list of contenders for the next breakthrough for making capital budgeting decisions and this book 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. This book emphasizes the need to assign a value to this flexibility, and how option-pricing theory (also known as contingent claims analysis) sometimes provides a method for valuing flexibility.
• 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 business decisions at all levels, the emphasis is on the applications of capital budgeting techniques to a variety of issues. These include the hugely significant buy versus lease decision which costs corporations billions each year. Current business decisions also need to be made considering the cross-border implications, and global business aspects, identifying the specific aspects of internationalinvestment decisions, appear throughout the book.