Investment Valuation and Appraisal: Theory and Practice (Springer Texts in Business and Economics)

This textbook introduces readers to the most relevant aspects of Investment Evaluation in the context of enterprise evaluation. It utilises a clear didactic concept and concisely presents representative cases, supported by calculations and their step-by-step, Excel-based solutions. In addition, the book analyses the respective benefits of the calculation models discussed from a management standpoint. Preface Contents 1: Introduction to Investment Evaluation 1.1 Objectives 1.2 Significance and Relevance of the Investment Evaluation 1.3 Aim and Definition of Investment Calculation 1.4 Differentiation of Investment Calculation from Other Business Studies 1.5 Investment Calculation Procedures at a Glance 1.6 Historical Development of Investment Calculation 1.7 The Organisational Structure for Investment Analysis 1.8 Process Organisation of Investment Calculation 1.9 The Problem of Collecting Data for Investment Calculation 1.10 Necessity and Limits of Investment Calculation 1.11 Summary References 2: Static Investment Calculation Methods 2.1 Objectives 2.2 Fundamental Aspects of Static Investment Calculation Methods 2.3 A Modular System for the Creation of Static Investment Calculation Formulas 2.3.1 The Components of Static Investment Calculation Formulas 2.3.2 The Combinations for the Creation of Static Investment Calculation Formulas 2.3.2.1 The Consideration of the Type of Calculation 2.3.2.2 The Distinction Between ``Comparison of Alternatives ́ ́ and ``Replacement Problem ́ ́ 2.3.2.3 The Notion of Capital Commitment 2.3.3 Section Results 2.4 The Cost Comparison Calculation 2.4.1 Presentation and Criticism of the Cost Comparison Calculation 2.4.2 Formulas of the Cost Comparison Calculation 2.4.3 Application of the Cost Comparison Calculation 2.4.3.1 Exercises 2.4.3.2 Solutions 2.4.4 Section Results 2.5 The Profit Comparison Calculation 2.5.1 Presentation and Criticism of the Profit Comparison Calculation 2.5.2 Formulas of the Profit Comparison Calculation 2.5.3 Application of the Profit Comparison Calculation 2.5.3.1 Exercises 2.5.3.2 Solutions 2.5.4 Section Results 2.6 The Profitability Calculation 2.6.1 Presentation and Criticism of the Profitability Calculation 2.6.2 Formulas of the Profitability Calculation 2.6.3 Application of the Profitability Calculation 2.6.3.1 Exercises 2.6.3.2 Solutions 2.6.4 Section Results 2.7 The Static Amortisation Calculation 2.7.1 Presentation and Criticism of the Static Amortisation Calculation 2.7.2 Formulas of the Static Amortisation Calculation 2.7.3 Application of the Static Amortisation Calculation 2.7.3.1 Exercises 2.7.3.2 Solutions 2.7.4 Section Results 2.8 Case Study 2.8.1 Exercises 2.8.2 Solution 2.9 Summary Reference 3: Dynamic Investment Calculation Methods 3.1 Objectives 3.2 Model Assumptions of Dynamic Investment Calculation Methods 3.2.1 Objective of the Dynamic Investment Calculation Methods 3.2.2 Assumptions of the Dynamic Investment Calculation Methods 3.2.2.1 The Safety Assumption 3.2.2.2 The Assumption of Payments in Arrears 3.2.2.3 The Assumption of a Payment Deferral 3.2.2.4 The Interest Assumption 3.2.2.5 The Calculation Element Assumption 3.2.2.6 The Market Assumption 3.2.3 Calculation Elements of Dynamic Investment Calculation Methods 3.3 Fundamentals of Financial Mathematics 3.3.1 The One-Time Factors 3.3.2 The Summation Factors 3.3.3 The Distribution Factors 3.4 The Net Present Value Method 3.4.1 Net Present Value with Individual Discounting 3.4.2 Net Present Value If DSF Can Be Used 3.4.3 Net Present Value with Infinite Useful Life 3.4.4 Case Study Net Present Value Method 3.4.5 Section Results 3.5 The Horizon Value Method 3.6 The Annuity Method 3.7 The Internal Rate of Return Method 3.7.1 Determination of the Yield with the Regula Falsi 3.7.2 Special Cases in Determining the Return 3.7.2.1 The Perpetual Annuity 3.7.2.2 The Two-Payment Case 3.7.2.3 Residual Value Equal to the Acquisition Payment 3.7.2.4 The Investment Without Residual Value 3.7.3 Section Results 3.8 The Dynamic Amortisation Calculation 3.9 Case Study 3.10 Summary Reference 4: Selection of Alternatives and Investment Programme Planning 4.1 Objectives 4.2 Selection of Alternatives as a Problem in Investment Calculation 4.2.1 An Example of the Ambiguity in the Selection of Alternatives 4.2.2 Causes for Ambiguity in the Selection of Alternatives 4.2.3 Section Results 4.3 Removal of the Reinvestment Premise 4.3.1 Use of Capital in the Dynamics and Reality 4.3.2 Net Present Value Formula with Removed Reinvestment Premise 4.3.3 Consequence of the Net Present Value Formula for the Selection of Alternatives After Removing the Reinvestment Premise 4.3.4 Application Example 4.3.4.1 Exercises 4.3.4.2 Solutions 4.3.5 Section Results 4.4 Fictitious Investments 4.4.1 Graphic Form and to an Account Assigned Form of the Fictitious Investment 4.4.2 Graphical Form of the Fictitious Investment 4.4.3 To an Account Assigned Form of the Fictitious Investment 4.4.4 Application Example 4.4.5 Section Results 4.5 Ambiguity of the Internal Rate of Return 4.5.1 Special Net Present Value Functions in Determining the Return 4.5.2 Examples of Ambiguous Returns 4.5.3 Check Routines for Checking the Economic Validity of Determined Returns 4.5.4 Section Results 4.6 The Utility Value Analysis 4.6.1 Procedure of the Utility Value Analysis 4.6.2 Application Example 4.6.3 Section Results 4.7 The Account Development Planning 4.7.1 Presentation of the Account Development Planning 4.7.2 Application Example for Account Development Planning 4.7.3 Section Results 4.8 The Dean Model 4.8.1 Representation of the Dean Model 4.8.2 Comparison of the Programme Decision According to Dean Model and Account Development Planning 4.8.3 Section Results 4.9 The Linear Optimisation 4.9.1 Linear Optimisation Technique 4.9.2 Application Example 4.9.2.1 Exercises 4.9.2.2 Solutions 4.9.2.3 Interpretation Possibilities of the Solution 4.9.3 Section Results 4.10 Case Study 4.10.1 Exercises 4.10.2 Solutions 4.11 Summary References 5: Optimum Useful Life and Optimum Replacement Time 5.1 Objectives 5.2 Useful Life Optimisation as an Economic Problem 5.3 Model Assumptions for the Calculation of Useful Life 5.4 Determination of the Optimum Useful Life 5.4.1 Optimum Useful Life for a One-Time Investment 5.4.1.1 General Approach 5.4.1.2 Special Case of Constant Annual Payments 5.4.1.3 Application Example 5.4.2 Optimum Useful Life with Repeated Investment 5.4.2.1 Discrepancy in Criteria for Optimising the Useful Life of One-Time and Repeated Investments 5.4.2.2 Optimisation of the Useful Life for Finitely Repeated Investments 5.4.2.3 Determination of the Optimum Useful Life in Infinitely Repeated Investment Chains 5.4.2.4 Application Example for Determining the Optimal Duration of Use for Infinitely Repeated Investment Chains According to... 5.4.2.5 Special Case of Constant Annual Payments with Infinitely Repeated Investment Chains 5.4.2.6 Application Examples for Determining the Optimum Useful Life for Infinitely Repeated Investment Chains 5.4.3 Section Results 5.5 Determination of the Optimal Replacement Time 5.5.1 Optimal Replacement Time with Annual Replacement Possibility 5.5.2 Optimum Replacement Time for Replacement After a Multi-Year Period 5.5.3 Application Example 5.5.4 Section Results 5.6 Case Study 5.6.1 Exercises 5.6.2 Solutions 5.7 Summary 6: Investment Decisions in Uncertainty 6.1 Objectives 6.2 Data Uncertainty as a Decision-Making Problem 6.2.1 The Concept of Risk 6.2.2 Reasons for Risk in the Investment Decision 6.2.3 The Importance of Considering Risk in the Investment Decision 6.2.4 Section Results 6.3 The Correction Procedures 6.3.1 Correction Procedure in Detail 6.3.2 Application Example for the Correction Methods 6.3.3 Section Results 6.4 Sensitivity Analyses 6.4.1 The Critical Value Calculation 6.4.1.1 Display of the Critical Value Calculation 6.4.1.2 Application Example for the Critical Value Calculation 6.4.1.3 Presentation of the Critical Value Calculation in Relation to Two Investments 6.4.1.4 Application Example for the Critical Value Calculation in Relation to Two Investment Objects 6.4.2 The Triple Calculation 6.4.2.1 Presentation of the Triple Calculation 6.4.2.2 Application Example of the Triple Calculation 6.4.3 The Target Value Change Calculation 6.4.3.1 Presentation of the Target Value Change Calculation 6.4.3.2 Application Example of the Target Value Change Calculation 6.4.4 Section Results 6.5 Sequential Investment Decisions 6.5.1 Procedure for Sequential Planning 6.5.2 Application Example for Sequential Planning 6.5.3 Section Results 6.6 Investment Decision in Uncertainty 6.6.1 Principles of Dominance 6.6.2 The Maximax Rule 6.6.3 The Minimax Rule 6.6.4 The Hurwicz Rule 6.6.5 The Laplace Rule 6.6.6 The Savage-Niehans Rule 6.6.7 Section Results 6.7 The Risk Analysis 6.7.1 Procedure for Risk Analysis 6.7.2 Application Example for Risk Analysis 6.7.3 Section Results 6.8 Portfolio Selection 6.8.1 Procedure for the Portfolio Selection Model According to Markowitz 6.8.2 Application Example for Portfolio Selection 6.8.3 Section Results 6.9 Case Study 6.10 Summary References Tables of Financial Mathematics Index