Strategic Financial Management
R. A. Hill
Strategic Financial Management
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Strategic Financial Management © 2008 R. A. Hill to be identified as Author Finance & Ventus Publishing ApS ISBN 978-87-7681-425-0
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Strategic Financial Management
Contents
Contents
PART ONE: AN INTRODUCTION 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 PART TWO: THE INVESTMENT DECISION 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 8 8 8 10 11 13 15 18 21 24 25 27 27 28 28 34 36 37
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Strategic Financial Management
Contents
3. 3.1 3.2 3.3 3.4 3.5 3.6 3.7 4. 4.1 4.2 4.3 4.4 4.5 4.5 4.6 4.7
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 The Treatment of Uncertainty Dysfunctional Risk Methodologies Decision Trees, Sensitivity and Computers Mean-Variance Methodology Mean-Variance Analyses The Mean-Variance Paradox
Strategic Financial Management
Download free books at BookBooN.com 2
Strategic Financial Management © 2008 R. A. Hill to be identified as Author Finance & Ventus Publishing ApS ISBN 978-87-7681-425-0
Download free books at BookBooN.com 3
Strategic Financial Management
Contents
Contents
PART ONE: AN INTRODUCTION 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 PART TWO: THE INVESTMENT DECISION 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 8 8 8 10 11 13 15 18 21 24 25 27 27 28 28 34 36 37
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maeRsK inteRnationaL teChnoLogY & sCienCe PRogRamme Are you about to graduate as an engineer or geoscientist? Or have you already graduated? If so, there may be an exciting future for you with A.P. Moller - Maersk.
www.maersk.com/mitas
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Strategic Financial Management
Contents
3. 3.1 3.2 3.3 3.4 3.5 3.6 3.7 4. 4.1 4.2 4.3 4.4 4.5 4.5 4.6 4.7
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 The Treatment of Uncertainty Dysfunctional Risk Methodologies Decision Trees, Sensitivity and Computers Mean-Variance Methodology Mean-Variance Analyses The Mean-Variance Paradox
References: 1. Fisher, I., The Theory of Interest, MacMillan (London), 1930. 2. Hill, R.A., “Capital Budgeting: The Cut-Off Rate for Investment”, The Singapore Accountant, November 1988. 3. Gordon, M.J., “Optimal Investment and Financing Policy”, The Journal of Finance, Vol. 18, No.2, May 1963. 4. Keynes, J. M., The General Theory of Employment, Interest and Money, MacMillan (London), 1936. 5. Modigliani, F. and Miller, M.H., “The Cost of Capital, Corporation Finance and the Theory of Investment”, American Economic Review, Vol. XLVIII, No. 3, June, 1958. 6. Dunning, J.H. and Rowan, D.C., “Inter-firm Efficiency Comparisons: US and UK Manufacturing Enterprises in Britain”, Banca Nationale del Lavaro Quarterly Review, No. 85, June, 1968. 7. I.C.A.E.W., “The Corporate Report”, ASSC, (London), 1975. 8. www. sternstewart.com 9. Stern, J., Shiely, J. and Ross, I., The EVA Challenge-Implementing Value Added Change in an Organisation, John Wiley and Sons Inc. (New York), 2001. 10. Young, S.D. and O’ Byrne, S.F., EVA and Value Based Management: A Practical Guide to Implementation, McGraw-Hill (New York), 2001. 11. Neale, B. and McElroy, T., Business Finance: A Value Added Approach, Pearson Education (Harlow), 2004. 12. Stewart, G. B., The Quest for Value, Harper Business (New York), 1991. 13. Weaver, S.C., “Measuring Economic Value Added: A Survey of the Practices of EVA Proponents”, Journal of Applied Finance, Vol. 11, No. 1, Fall / Winter, 2001. 14. Griffith, J.M., “The True Value of EVA”, Journal of Applied Finance, Vol. 14, No. 1, Fall / Winter, 2004. Download free books at BookBooN.com 109