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All the foregoing books, articles etc. have been used for reference purposes in preparing the text but not all are specifically identified therein.

Index Abandonment values, 201, 209-12 Accelerator theories, 31, 32, 34 Accept or reject decisions, see Eval-

uation methods Accounting measures, and DCF,

163-7 Accounting rate of return, 88-9, 163-

7, 203, 218 Advertising, as investment, 117 Amortisation sinking fund, Ill et seq Anatomy of firm, 13 Annual capital charge, 110 et seq Annual equivalents, of costs, 205-9,

see also Annual capital charge Annuity table, 94 Applied research, 64 Aspirations, decision maker, 27-8 Audit, see Post-audit Average cost of capital, 104-5, 147-

56, 195

Bank loans, cost, 102, 170 Basic research, 63-4 Baumol, economic models, 34-{) Bayes criterion, 145 Behavioural factors, problem solving,

habitual, 26-9 R & D, 59-{)0

Behavioural theory of the firm, 8-11 Benefit-cost ratio, 106-7 Beta analysis and co-efficient, 141-4 Bonds, see debentures Book yields, 163-7, 179 Borrowing capacity, 170 (and see

Gearing) Budgets, capital, 49-50

R & D, 86-7

Capital, asset pricing model, 141, 142 at risk, 160-2, 185 charge (annual) 110 et seq

cost of, see Cost of capital output ratios, 31, 32 rationing, 96, 105-10 structure, 147-56, 183-4, 187-9

Case study, recycling decision, 128-32 Cash flows, 100, 169-73, 196 Change, resistance to, 26-7 Check list, investment proposals, 21-

3 Classification, investment decision,

2-3 Clothing and footwear industry, 197-

8 Co-efficient of variation, 149 Commitment, gradual, R & D, 59 Competitive or complementary, R &

D, 57-9 Conclusions, 218-21 Conflict resolution, 9 Conservatism, behaviour, 26-9, 200

forecasts, 126 Constraints, 40-1, 109-10 Construction industry, 197-8 Control, objective formulation, 38-42

overseas projects, 189-91 pre-commencement, 201-2

Conventional theory, some problems, 147 et seq

Corporate risk, and project risk, 137-44

Correlation, between projects, 139 et seq

Cost of capital, general, 102-5, 147-56

inflation, 194-{) overseas projects, 181-4 projects not yielding, 167-8

Critical path analysis, 202 Currencies, hard and soft, 186-7

Debentures, cost, 103, 148, 173, 194

231

232 Index

Decentralisation, overseas projects, 190

Decision-maker, corporate objectives, 24 et seq

Decision-making unit, 16 Decision tree, R & D, 66-7, 77 Deepening, capital, 2 Definition, investment decision, l DEMON model, R & D, 80-3 Depreciation, cash flow, lOl

sinking fund, lll-16, 153, 165-7 Development, and Research, 52 et seq,

64 Differential inflation, 193, 197-9 Discontinuities, see Indivisibilities Discounted cash flow, (DCF) ac-

counting measures, 163-7, 203 general, 90 et seq models, R & D, 74-7 techniques, 117-23

Earnings approach, to equity cost, 148 et seq

Echo effect, 26 Economic models, Baumol, 34-6 Economic theory of firm, 6-7 Elasticity, financial, operating and

overall, 175-8 Electronic equipment manufacturer,

216 Empirical studies, 213-18 Environment of firm, 14 Equity capital, cost of, 103, 148 et seq Estimates, three-level, 126-30 Evaluation methods, certainty, 88 et

seq overseas projects, 180-7 R & D, 65 et seq

Expansion and diversification invest­ments, 3, 30

Expected monetary value, 133--4 External finance, overseas projects,

188 External structure of firm, 14

Financial elasticity, 175-8 Financial risks, overseas, 185-7 Financial structure, see Capital

structure

Financing, budget, 50 cost of capital, 147 et seq overseas projects, 188-9

Firm, decision-making unit, 16-18 system, ll-16 theory of, 6-ll

Fisher's marginal rate of r~turn, 99 Fixed assets, unused or idle, 160 Flexibility, need for, 50-1, 60 Forecasting, conservative, 126

incremental factors, 159 Foreign Exchange, 185 Future cost of capital, 156, 196

Game theory, 73--4, 144-5 Gearing, effect on residual earnings,

175-8 marginal cost of capital, 154-6 overseas companies, 184

Government policy, vii, 219 Gradual commitment, R & D, 59 Growth, impact on returns, 164, 179

in dividends, 149-53

Habitual behaviour, 26-9 Homogeneity, Jack of in R & D, 55

I die fixed assets, 160 Illustrations of application of DCF

techniques, 117-23,128-32,169, 171-3

Imperfect, knowledge, 33 markets, 33

Imputation system of tax, 151 Incremental investment, 97, 159 Indifference curves, 137-8 Indivisibilities, capital rationing, l 06-

10 Inflation, 164, 172, 192-200 Insolvency risk, cash, 178 Intangible output, R & D, 57 Integration, 4 Interdependence, of finance and in­

vestment, 158, 170, 197 Interest, free debt, 194-5

rates, 33 treatment in evaluation, 101, 157-

9, 170

Index 233

Internal finance, overseas projects, 188, see also Retained profits

Internal rate of return, 92 et seq International finance, 181--4 Investment, motives, 30

Lead times, R & D, 57 Lease transactions, 174 Life of projects, variation, 97-100 Lifespan of asset, 164 Limiting factors, see Constraints Linear programming, 37, 107-10 Liquidity preference, 26-7, 31 Liquidity theory, 33 Loan stocks, see Debentures Local finance, overseas projects, 189 Long-range planning, 45-9

Management, involvement, 60 Marginal costs and benefits, 100-1 Marginal cost of capital, 147, 154-6 Marketability factor, and R & D, 71 Marketing costs, and DCF, 76, 82, 83 Markets, check list, 21 Mathematical programming, 107-10 Maximin criterion, 144-5 Minimax regret criterion, 145 Modigliani & Miller, theory, 155-6 Monetary cost of capital, 194-6 Monetary value, expected, 133--4 Monte Carlo simulation model, 78-

80 Mortality, of R & D projects, 55 Motives, investment, 30, 31

managers, 32 Multinational companies, 181 et seq Multiple yields, 96 Mutually exclusive projects, 96-100,

109

Net present value, general, 76, 92 versus internal rate of return, 95-

100 see also Present value

Network analysis, 202 New product decision, 78-80 New product process, 61-3

Objectives, determination, 24 et seq formulation, 29, 38--42

survival, 168 Operating elasticity, 175-8 Opportunity cost, 10 I, 160 Opportunity focus, R & D, 60 Optimal economic life, 205, 209 et seq Optimistic estimates, 126-7 Ordinary shares, cost, 103, 148 et seq Organisation, goals, learning, expec-

tations, choice, theory of firm, 7-11

Overall cost of capital, 104-5, 154-6 Overall elasticity, 175-8 Overhead expenses, 159-60 Overseas projects, 180 et seq Overseas subsidiary, issue of shares,

182-3

Packback method, 74, 89-90, 125-6, 162, 185

Perpetuities, 208-9 Pessimistic estimates, 126-7 Physiology of firm, 13 Planning, function, 43 et seq, see also

Empirical studies overseas projects, 189-91 strategic, 43-5 tactical, 45

Policy, check list, 22 Political risks, overseas, 184-5 Portfolio theory, 137--44 Post-audit, inflation, 200

reviews, 202--4 Postponability, 109 Pre-commencement control, 201-2 Preference shares, cost, 103, 148, 173 Present value, 76, 92, 95-100 Present value tables, 93--4 Probability, assignments, 126 et seq

empirical study, 215 R & D models, 77-85

Problem solving behaviour, 26-9 Product fit, evaluation, 70 Products/processes, established or

new, 64-5 Profit flow, 169 Projects, not yielding cost of capital,

167-8, 200 R & D, 75 risk and corporate risk, 137--44

234 Index

Ranking projects, 95-6 Rate of Return, accounting, 88-9 Rationality, and decision maker, 28-9 Rationing, budget, 49

capital, 96, 105-10 Real cost of capital, 194-6 Reinvestment assumption, 95-100 Remittance of overseas funds, 186-7 Replacement cycle, 204-9 Replacement investments, 3, 30 Research and Development, classifi-

cation, 61-5 general, 52 et seq problem areas, 54-60 scope, 53 summary, 61

Residual income, 217-18 Resistance to change, 26-7 Resources, budgeted for R & D, 54

check list, 22 Retained profits, cost, 103-4, 152-3,

see also Internal finance Retirement period, 207, 210-12 Return on capital employed, 88, 163 et

seq Rights Issues, 152 Risk, adjusted discount rate, 124-5

attitudes (preference) 26, 29, 133-7 aversion, 25-6 capital, 160-2, 185 inflation, 199 overseas projects, 184-7 premium, 194 project and corporate, 137-44 spectrum, 2, 124-5 systematic and unsystematic, 143

Sales maximisation model, 35 Satisficing, 28-9, 40 Scope, R & D, 53 Scoring models, R & D, 68-72 Search, problemistic, 10 Senility effect, 26 Sensitivity analysis, 130, 133 Sequential investment decisions, 146 Share issues, 182-4 Short-range planning, 46-9

Simulation, 130 Specific cost of capital, 147-53 SPRINTER model, R & D, 83-5 Stability, R & D, 60 Standard deviation. 137 et seq Stochastic decision tree, 77, 146 Stockholding gains, 173 Strategic planning, 43-5 Survival objective, 168 Synchronised inflation, 193, 196-7 Synergy, 5 Systems, approach, 3-6

definition, 3 identification, 4 levels, 6

Tactical planning, 45 Taxation, cash flows, 101,173-4,176

imputation system, 151 Technology, check list, 21-2 Theory of the firm, 6-11 Three-level estimates, 126-30 Time period, planning, 45-9 Time value of money, 193, see also Net

present value Trade credit, cost of, 102, 194-5 Traditional methods, investment ap­

praisal, 88-90 Transfer prices, 58, 189, 191

Uncertainty, avoidance, 9-10 gross in R & D, 55-7 project appraisal, 124 et seq see also Risk

Unprofitable projects, 167-8 Utility theory, 40-1, 134-7

Variability of residual earnings, effect of gearing, 175-8

Weighted average cost of capital, 104-5. 195

Widening, capital, 2 Working capital, 168-73, 195

Yield method, see Internal rate of return

Yields, multiple, 96