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Top-Management Policy on Plant, Equipment, and Product Development

V I I Capital Budget Execution T H E D E C I S I O N S on policy and priorities described to this point are not the whole of capital programming. Actual execution of the budget is of considerable importance for two reasons. In the first place, delays in execution and the characteristic pace and facility of execution inevitably affect the remaining years of the capital program; and amendments during the life of the budget affect the integrity and pre- dictability of previous capital programming. Secondly, ex- perience with capital budget execution might

4. Capital-Budgeting Im Paradigma der klassischen Finance gibt es keinen gut funktionierenden Kapitalmarkt. Der Unternehmer ist daher direkt von denjenigen Zahlungsüberschüssen betroffen, die sich aus den angenommenen Investitionen und Finanzierungen ergeben. Sie bestimmen seinen Kon- sum und seinen Nutzen. Für die Bestimmung des optimalen Budgets wird der Ansatz von J. DEAN besprochen, bei dem es allein auf die Internen Renditen ankommt. Sodann gehen wir in diesem Kapitel zum Paradigma der neoklassischen Finance über: Es soll einen gut funk- tionierenden

References Drury, Colin and Mike Tayles UK Capital Budgeting Practices: Some Additional Survey Evidence, European Journal of Finance (2), (1996): 371-388. Farragher, Edward J., Robert T. Kleiman and Anandi P. Sahu Current Capital Investment Practices, Engineering Economist (44), 2, (1999): 137-150. Graham, John R. and Campbell R. Harvey, The Theory and Practice of Corporate Finance: Evidence from the Field, Journal of Financial Economics (60), 2-3, (2001): 187-243 Lazaridis, Ioannis T. Capital Budgeting Practices: A Survey in the Firms in Cyprus, Journal

10 The Basics of Capital Budgeting 10.1 Introduction We now focus on investment principle (capital budgeting). The capital budget must re- late to the firm’s mission and its abilities to meet competitive challenges. Information from marketing, finance, and production analyses are put together to form cash flow estimates of proposed projects. Project risk considerations enter the capital budget analysis because higher-risk projects should be expected to earn higher returns than lower-risk projects. The capital budget evaluation is done with the goal of identifying

Chapter 9 Capital Budgeting and Replacement Analysis 9.1 Learning objectives Capital financing and capital allocation among projects are the two funda- mental facets of capital budgeting an engineering manager must understand. Managing the sources and uses of capital funds is a highly strategic activity by corporate-level decision-makers; the ability of an engineering manager to make meaningful contributions to the capital budgeting process adds value to the corporation (you differentiate yourself in the job market when these skills have been proven). Companies

128 2.11 Capital Budgeting Tests Related Ratios / Additional Notes The cash flow per share serves as the basis for the calculation of a similar ratio called "Price-to- cash-flow" ratio. This ratio is used for analyzing the developments in the financial power of a company as also for making inter-enterprise comparisons. By comparison with the Price Ear- nings Ratio, cash flow per share and price to cash flow ratios are less influenced by balance sheet related policies. When (free) cash flow per share is divided by the market price per share, it is called

program to give a convex polyhedron whose vertices are integer vectors. The prob­ lem and the algorithm are described in terms of a corresponding bi- directed graph. The inequalities are equivalent to some duality results which are interpreted in terms of the graph. A computer code has been written to implement the algorithm. MATHEMATICAL PROGRAMMING AND PROJECT INTERRELATIONSHIPS IN CAPITAL BUDGETING A. K. Klevorick The usefulness of mathematical programming methods in analyz­ ing capital-budgting problems is, by this time, widely recognized. The research of

Chapter 17 RATIONAL CAPITAL BUDGETING IN AN IRRATIONAL WORLD Jeremy C. Stein 1. Introduction The last several years have not been good ones for the capital asset pricing model (CAPM). A large volume of recent empirical research has found that (1) cross-sectional stock returns bear little or no discernible relationship to β and (2) a number of other variables besides β have substantial predictive power for stock returns. For example, one variable that has been shown to be an important and reliable predictor is the book-to-market ratio: the higher a firm’s B

3 Corporate Capital Budgeting Practices and the Effects of Tax Policies on Investment Lawrence H. Summers The importance of depreciation and investment tax credit provisions in determining the level and composition of investment is widely rec- ognized. Corporations carefully take account of depreciation tax ben- efits in their capital budgeting decisions. Therefore, economists analyze investment incentives by postulating that the present value of depre- ciation tax deductions along with the investment tax credit determines the effective purchase price