Strategic parameters for capital budgeting when abandonment value is stochastic
Full text is not in this repository.
This item is available in the Library Catalogue
This paper investigates how capital budgeting techniques that include the option to abandon can be exploited as management tools to aid not only in the invest/abandon decision but also in ongoing project management, financial forecasting and the timing of strategic moves. Three parameters are highlighted - the expected growth rate of the salvage value, the volatility of percentage changes in the salvage value and its correlation with the rate of return on the investment itself. Two of these parameters, volatility and correlation, interact with the volatility of the return on the investment in surprising ways, with increases at first decreasing the option value up to a critical point and increasing it thereafter. This insight has implications for the decision making process. Finally, it is shown how the model can be applied in practice to the capital budgeting process, including investment and disinvestment. It is also shown as to how the model can be used as a management tool for financial planning, monitoring ongoing investments, and for the timing of strategic moves.
|Research Areas:||A. > Business School > Accounting and Finance|
|Deposited On:||26 Nov 2008 16:43|
|Last Modified:||10 Mar 2015 12:11|
Repository staff only: item control page
Full text downloads (NB count will be zero if no full text documents are attached to the record)
Downloads per month over the past year