BUSF_A01.qxd

Chapter 5 • Practical aspects of investment appraisal l Marketable investments.Investments in shares and loan notes of other bus ...

5.13 Real options 5.13 Real options Before we complete this consideration of the practical aspects of investment decision making ...

Chapter 5 • Practical aspects of investment appraisal Cash/accounting flows lNet present value (NPV), internal rate of return (I ...

Summary Capital rationing lMay be self-imposed (soft) or imposed by the financial market (hard). lMay be single-period or multi- ...

Chapter 5 • Practical aspects of investment appraisal l Uses standard accounting profit and capital invested, but adjusts both o ...

Problems (Problems 5.1 to 5.4 are basic-level problems, whereas problems 5.5 to 5.8 are more advanced and may contain some pract ...

Chapter 5 • Practical aspects of investment appraisal Approach B This involves using an existing machine, which cost £150,000 tw ...

Problems by 31 December 20X7. The contract price will be receivable in three equal annual instal- ments, on 31 December 20X6, 20 ...

Chapter 5 • Practical aspects of investment appraisal Year Project A Project B Project C £m £m £m 0 (1.6) (2.3) – 1 (0.8) 0.6 (2 ...

Problems Based on an estimated constant annual demand of 10,000 hair dryers, the unit cost of a hair dryer has been determined b ...

Chapter 5 • Practical aspects of investment appraisal 3 Plant at the factory had a tax written down value of £1.2 million at 1 J ...

6.1 Introduction Until this point in the book we have all but ignored questions of risk. We are now going to start to confront t ...

Chapter 6 • Risk in investment appraisal some major uncertainties but it will never remove them all. For example, a business man ...

Sensitivity analysis Greene plc has the opportunity to invest in plant for the manufacture of a new product, the demand for whic ...

Chapter 6 • Risk in investment appraisal (1)Initial investment Starting with the initial investment, putting the symbol I into t ...

Sensitivity analysis (6)Cost of capital −50,000 +{5,000 ×[10 −(4 +3)] ×A} = 0 where Ais the annuity factor. A==3.333 The annuity ...

Chapter 6 • Risk in investment appraisal Note that in this example, since there were constant annual cash flows (that is, an ann ...

6.3 Use of probabilities Clearly, these approaches to risk reduction are not without cost. Market research costs money. A suppli ...

Chapter 6 • Risk in investment appraisal Example 6.2 vastly oversimplifies the situation, both by assuming that there are only t ...

Use of probabilities Solution Figure 6.1 Possible outcomes of Greene plc’s investment opportunity This shows the nine possible o ...