Book contents
- Frontmatter
- Contents
- Preface
- Acknowledgements
- Detailed contents
- PART I INTRODUCTION
- PART II DEMAND ANALYSIS
- PART III PRODUCTION AND COST ANALYSIS
- PART IV STRATEGY ANALYSIS
- Chapter 8 Market structure and pricing
- Chapter 9 Game theory
- Chapter 10 Pricing strategy
- Chapter 11 Investment analysis
- Chapter 12 Government and managerial policy
- Index
Chapter 11 - Investment analysis
Published online by Cambridge University Press: 05 June 2012
- Frontmatter
- Contents
- Preface
- Acknowledgements
- Detailed contents
- PART I INTRODUCTION
- PART II DEMAND ANALYSIS
- PART III PRODUCTION AND COST ANALYSIS
- PART IV STRATEGY ANALYSIS
- Chapter 8 Market structure and pricing
- Chapter 9 Game theory
- Chapter 10 Pricing strategy
- Chapter 11 Investment analysis
- Chapter 12 Government and managerial policy
- Index
Summary
Objectives
To explain the nature and significance of capital budgeting.
To describe and distinguish between different types of investment or capital expenditure.
To explain the process and principles of cash flow analysis.
To explain the different methods of evaluating investment projects.
To explain the concept and measurement of the cost of capital.
To explain the nature and significance of risk and uncertainty in investment appraisal.
To examine the measurement of risk.
To explain the different ways of incorporating risk into managerial decision-making in terms of investment analysis.
To explain the concept of the optimal capital budget and how it can be determined.
Introduction
The nature and significance of capital budgeting
So far in the analysis of the previous chapters we have concentrated largely on the aspects of managerial decision-making that relate to making the most efficient use of existing resources. It is true that some aspects of decision-making in the long run have been considered, for example determining the most appropriate scale for producing a given output (Chapter 6), and the decision to expand capacity in a duopolistic market (Chapter 9), but many factors were taken as given in these situations. This chapter examines these long-run decisions in more detail, and explains the various factors that need to be considered in determining whether to replace or expand a firm's resources. As has been the case throughout the book, it will normally be assumed that the firm's objective is to maximize shareholder wealth, but certain aspects of public sector decision-making will also be considered, and these will be examined in further detail in the final chapter.
- Type
- Chapter
- Information
- Managerial EconomicsA Problem-Solving Approach, pp. 430 - 468Publisher: Cambridge University PressPrint publication year: 2005