Strategic Financial Management: Introduction & The Investment Decision: Part I

E-Book Overview

BoBoCoAe – 2010, 63 pages ISBN: 8776815707, 9788776815707
This book reviews the subject within the context of current events: the investment decision, which maximises net present value and shareholder wealth. Each chapter contains activities (with solutions) to test understanding at your own pace. Comprehensive, yet concise, the material is also presented logically as a guide to further study.
Content: Part One: An Introduction <strong>Finance – An Overview Financial Objectives and Shareholder Wealth Wealth Creation and Value Added The Investment and Finance Decision Decision Structures and Corporate Governance The Developing Finance Function The Principles of Investment Perfect Markets and the Separation Theorem Summary and Conclusions Selected References
Part Two: The Investment Decision <strong>Capital Budgeting Under Conditions of Certainty The Role of Capital Budgeting Liquidity, Profitability and Present Value The Internal Rate of Return (IRR) The Inadequacies of IRR and the Case for NPV Summary and Conclusions <strong>Capital Budgeting and the Case for NPV Ranking and Acceptance Under IRR and NPV The Incremental IRR Capital Rationing, Project Divisibility and NPV Relevant Cash Flows and Working Capital Capital Budgeting and Taxation NPV and Purchasing Power Risk Summary and Conclusions <strong>The Treatment of Uncertainty Dysfunctional Risk Methodologies Decision Trees, Sensitivity and Computers Mean-Variance Methodology Mean-Variance Analyses The Mean-Variance Paradox Certainty Equivalence and Investor Utility Summary and Conclusions Reference

E-Book Content

Robert Alan Hill Strategic Financial Management: Part I Introduction & The Investment Decision 2 Strategic Financial Management: Part I – Introduction & The Investment Decision © 2010 Robert Alan Hill & Ventus Publishing ApS ISBN 978-87-7681-570-7 3 Strategic Financial Management: Part I Introduction & The Investment Decision Contents Contents PART ONE: AN INTRODUCTION 6 1. 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9 Finance – An Overview Financial Objectives and Shareholder Wealth Wealth Creation and Value Added The Investment and Finance Decision Decision Structures and Corporate Governance The Developing Finance Function The Principles of Investment Perfect Markets and the Separation Theorem Summary and Conclusions Selected References 6 6 8 10 12 14 18 20 23 25 PART TWO: THE INVESTMENT DECISION 26 2. 2.1 2.2 2.3 2.4 2.5 Capital Budgeting Under Conditions of Certainty The Role of Capital Budgeting Liquidity, Profitability and Present Value The Internal Rate of Return (IRR) The Inadequacies of IRR and the Case for NPV Summary and Conclusions 26 27 28 34 36 37 4 Strategic Financial Management: Part I Introduction & The Investment Decision Contents 3. 3.1 3.2 3.3 3.4 3.5 3.6 3.7 Capital Budgeting and the Case for NPV Ranking and Acceptance Under IRR and NPV The Incremental IRR Capital Rationing, Project Divisibility and NPV Relevant Cash Flows and Working Capital Capital Budgeting and Taxation NPV and Purchasing Power Risk Summary and Conclusions 39 39 41 42 43 45 47 50 4. 4.1 4.2 4.3 4.4 4.5 4.6 4.7 The Treatment of Uncertainty Dysfunctional Risk Methodologies Decision Trees, Sensitivity and Computers Mean-Variance Methodology Mean-Variance Analyses The Mean-Variance Paradox Certainty Equivalence and Investor Utility Summary and Conclusions Reference 51 52 52 53 56 58 60 62 63 5 Strategic Financial Management:
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