Capital Budgeting

This book presents a coverage of the major topical areas in financial decision-making, with particular reference to the firm's choice of which investments to make, both for basic-level MBA students and as an in-depth reference textbook for more advanced courses. It merges the suitable features of the Berk-De Marzo textbook on Corporate Finance (from which several chapters are derived, together with the pedagogical approach adopted in writing the added chapters) with some more in-depth analyses on topics totally omitted or only briefly explained in a standard capital budgeting textbook, such as the following: a) tools for analyzing the uncertainty of the investment's cash flows (e.g. sensitivity analysis and simulation models), by adopting a more appropriate probabilistic approach b) tools for incorporating in the investment project's value the value of the decision's flexibility after its implementation, such as, for example, the decision-tree analysis and the real-options approach c) tools for considering the rationing of capital or other inputs: for example, linear programming and the post-optimum analysis by means of the dual problem solution d) the effects of the financial policies on the measurement of the cost of capital, and the appropriate formulations for different debt policies. The book carefully balances the latest advancements in research and practice with a thorough coverage of core capital budgeting topics.