[PDF] Basic Uncertainty In Capital Budgeting eBook

Author : R.L. Crum
Publisher : Springer Science & Business Media
Page : 246 pages
File Size : 32,16 MB
Release : 2012-12-06
Category : Business & Economics
ISBN : 9401174083

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The business environment, particularly after the continuing oil crises of the seventies, can be characterized as evolving rapidly in complex and often unpre dictable ways. Such things as high interest and inflation rates, fluctuating ex change rates, volatile commodity markets, and increasing political turmoil have led to a situation in which explicit consideration of environmental dynamics is becoming much more important for successful business planning than was true in the past. Companies are finding that it is no longer possible to conduct "busi ness as usual" under these changing circumstances. Rather, decision makers are having to be more cognizant of the many sources of uncertainty that could have serious impacts on the continued prosperity of the firm, as well as of actions that can be taken so that the company can thrive in spite of these greater uncertainties. Businesses have responded to these challenges by giving more thorough con sideration to strategic issues. Whereas in the past the steady progression of mar kets and technology was taken for granted, the uncertainties associated with increased worldwide competition, as well as with other exogenous factors, have vii viii INTRODUCTION forced companies to think more about flexibility. This involves not only how best to exploit profitable current options, but also how to position themselves at present to be able to respond appropriately to threats and opportunities as they arise in the future. Unfortunately, in this redirection of outlook, the fmance profession has not kept pace.

Author : Stewart C. Myers
Publisher : Forgotten Books
Page : 71 pages
File Size : 44,96 MB
Release : 2015-06-25
Category : Business & Economics
ISBN : 9781330395226

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Excerpt from Procedures for Capital Budgeting Under Uncertainty Accordingly, the cost of capital is defined as the minimum expected rate of return on a project (with given risk characteristics) such that share price is increased by the project's adoption. The cost of capital is thus used as a hurdle rate, with the height of the barrier depending on the risk characteristics of the project compared with those of alternative investments open to shareholders. It is easy to point out deficiencies in this "NPV approach" - for instance, most authors are conspicuously vague about how to measure the hurdle rates appropriate to projects with different risk characteristics. The important point for our purposes, however, is that the NPV approach presumes projects to be risk-independent. That is, it presumes that the value of project B does not depend on the risk characteristics of the firm's existing assets, or of other investments the firm may undertake. 2. Treat capital budgeting as a problem of portfolio selection. - The framework for portfolio selection originally presented by Markowitz [10] [11] is now well-known and widely accepted, although difficulties in assembling data and performing the required calculations have limited its use in practice. The similarity between the tasks of portfolio selection and capital budgeting has led Lintner, among others, to conclude that "the problem of determining the best capital budget of any given size is formally identical to the solution of a security portfolio analysis." About the Publisher Forgotten Books publishes hundreds of thousands of rare and classic books. Find more at www.forgottenbooks.com This book is a reproduction of an important historical work. Forgotten Books uses state-of-the-art technology to digitally reconstruct the work, preserving the original format whilst repairing imperfections present in the aged copy. In rare cases, an imperfection in the original, such as a blemish or missing page, may be replicated in our edition. We do, however, repair the vast majority of imperfections successfully; any imperfections that remain are intentionally left to preserve the state of such historical works.

Author : Stewart C. Myers
Publisher : Forgotten Books
Page : 70 pages
File Size : 40,80 MB
Release : 2017-10-27
Category : Business & Economics
ISBN : 9780266824787

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Excerpt from Procedures for Capital Budgeting Under Uncertainty The initial cash flow b(o) will typically be an investment, and thus negative. About the Publisher Forgotten Books publishes hundreds of thousands of rare and classic books. Find more at www.forgottenbooks.com This book is a reproduction of an important historical work. Forgotten Books uses state-of-the-art technology to digitally reconstruct the work, preserving the original format whilst repairing imperfections present in the aged copy. In rare cases, an imperfection in the original, such as a blemish or missing page, may be replicated in our edition. We do, however, repair the vast majority of imperfections successfully; any imperfections that remain are intentionally left to preserve the state of such historical works.