scholarly journals La programmation déterministe du budget de capital : un modèle financier

2009 ◽  
Vol 50 (3) ◽  
pp. 415-449 ◽  
Author(s):  
Jean-Pierre D. Chateau
Keyword(s):  
Objective Function ◽  
Selection Criterion ◽  
Capital Budgeting ◽  
Cash Flows ◽  
Financial Instruments ◽  
Financial Model ◽  
Investment Funds ◽  
Investment Projects ◽  
The Impact

Abstract The financial model presented in the article attempts to further integrate capital budgeting into the firm's overall financial planning policy. Although it is an extension and generalization of Bernhard and Weingartner's previous models, it differs from these works by some basic assumptions related to both the objective function and constraint set. First, the objective function stresses the growing role of managerial discretion as opposed to the common assumption of maximizing shareholders' wealth. In particular we assume that managers wish to maximize the size of the firm under their control at the end of some future time horizon. Since net cash flows of the investment projects selected are sources of future investment funds, the managers try to keep the shareholders' dividends to a minimum level, sufficient enough however to pacify them. Secondly, the model constraints embody the complete set of financial instruments available to the corporation managers: in a sense, this enlarges the previous models' short-term external financing facilities by considering simultaneously the alternative long-term external financial instruments, namely equity and bond issues. In the latter case, the refunding features are incorporated in the constraints. The constraints also imply that managers prefer steady growth of net cash flows through time. This contrasts with the usual maximization approach which has been shown to favor long-term investment projects with somewhat more erratic net cash flows. The derivation of the Kuhn and Tucker conditions for the model allows us to show the impact of the opportunity cost of the various instruments on that of the liquidity requirement and the investment projects selection criterion. Finally, the duality properties also highlight the reciprocal relationships existing between the various opportunity costs, both internal and external.

scholarly journals Risk-Adjusted Impact of Administrative Costs on the Distribution of Terminal Wealth for Long-Term Investment

2014 ◽  
Vol 2014 ◽  
pp. 1-12 ◽  
Author(s):  
Montserrat Guillén ◽  
Søren Fiig Jarner ◽  
Jens Perch Nielsen ◽  
Ana M. Pérez-Marín
Keyword(s):  
Mutual Funds ◽  
Risk Adjustment ◽  
Hedge Funds ◽  
Time Horizon ◽  
Simple Formula ◽  
Investment Funds ◽  
Terminal Wealth ◽  
Administrative Costs ◽  
The Impact

The impact of administrative costs on the distribution of terminal wealth is approximated using a simple formula applicable to many investment situations. We show that the reduction in median returns attributable to administrative fees is usually at least twice the amount of the administrative costs charged for most investment funds, when considering a risk-adjustment correction over a reasonably long-term time horizon. The example we present covers a number of standard cases and can be applied to passive investments, mutual funds, and hedge funds. Our results show investors the potential losses they face in performance due to administrative costs.

scholarly journals Financial Diagnostics of Banks in the Process of Consolidation: The Goals, Methods, Analytical Approaches

2020 ◽  
Vol 12 (515) ◽  
pp. 361-368
Author(s):  
L. O. Prymostka ◽  
◽  
I. V. Krasnova ◽  
O. K. Lytvynenko ◽  
◽  
...  
Keyword(s):  
Weighted Average ◽  
Investment Project ◽  
Cash Flows ◽  
Economic Feasibility ◽  
Due Diligence ◽  
Investment Projects ◽  
Fundamental Value ◽  
Methods Analytical ◽  
The Impact ◽  
Analytical Approaches

The article is aimed at substantiating the economic feasibility and choosing from the methods of financial diagnostics of banks during consolidation in order to evaluate an agreement object as an investment project. The main directions of financial diagnostics of the M&A agreements for banks are defined. Emphasis is placed on the need to differentiate between the interpretation of the concepts of «financial diagnostics», «due diligence» and Financial Due Diligence (FDD). Taking into account the world and domestic experience, due diligence understanding is systematized and generalized through consideration of the related processes of the M&A agreement at the transaction level. The factors of the M&A agreement, which outline the areas of due diligence, are determined, the understanding of which ensures to have reduced the transactional risk of the transaction. It is specified that the main analytical instrumentarium for adequate substantiation and formation of an absolutely complete idea of the value of the agreed object is the FDD, which also serves as a quality basis for elaborating a strategy for the development of consolidated bank after the completion of the M&A agreement. The traditional FDD analytical instrumentarium, which covers both financial and institutional aspects, is proposed to be supplemented by including banks in the range of financial risks and sensitivity assessments. It is noted that to determine the internal value of the bank – the object of an agreement as a project for investment, approaches are used to forecast future activities, which include methods of discounting cash flows (DCF) and assessing the impact of the internal rate of return on the weighted average cost of capital (IRR / = WACC). On the basis of the generated sample of financial reports of 150 world banks, according to Refintiv, modeling of attractiveness of banks as investment projects through approaches (DCF) and (IRR / = WACC) is carried out. Criteria have been formed to choose an approach to assess the internal value of the banking business. On the basis of the allocated criteria, the results of modeling the attractiveness of projects according to the chosen approaches are compared. It is concluded that the most optimal in terms of accuracy of determining the internal (fundamental) value of the bank is the approach through the modeling of cash flows.

scholarly journals Does Customer Satisfaction lead to an increased firm value?

2009 ◽  
Vol 1 (2) ◽  
pp. 8-15 ◽  
Author(s):  
Aksoy Lerzan ◽  
Bruce Cooil ◽  
Christopher Groening ◽  
Timothy L. Keiningham ◽  
Atakan Yalcin
Keyword(s):  
Customer Satisfaction ◽  
Firm Value ◽  
Cash Flows ◽  
Financial Measures ◽  
Satisfaction Index ◽  
Financial Valuation ◽  
American Customer Satisfaction Index ◽  
The Impact ◽  
Future Cash Flows

Abstract Does customer satisfaction really lead to increased firm value? Traditionally, most financial valuation models do not include customer-related metrics such as customer satisfaction in the process. Studies in marketing, on the other hand, have consistently found that customer satisfaction improves the ability to predict future cash flows, long-term financial measures, stock performance, and shareholder value. This research examines the impact that customer satisfaction has on firm value by employing valuation models borrowed directly from the practice of finance. The data used in the analysis is compiled by merging publicly available customer satisfaction data from the ACSI (American Customer Satisfaction Index) with financial data from COMPUSTAT, and Center for Research in Securities Prices between 1996 and 2006. The results indicate that a portfolio of stocks consisting of firms with high levels and positive changes in customer satisfaction will outperform lower satisfaction portfolios along with Standard & Poor’s 500… Customer satisfaction does matter!

Purchasing power return, a new paradigm of capital investment appraisal

2018 ◽  
Vol 44 (2) ◽  
pp. 241-256 ◽  
Author(s):  
David DeBoeuf ◽  
Hongbok Lee ◽  
Don Johnson ◽  
Maksim Masharuev
Keyword(s):  
Capital Investment ◽  
Net Present Value ◽  
Capital Budgeting ◽  
Cash Flows ◽  
Purchasing Power ◽  
New Paradigm ◽  
Content Type ◽  
Investment Projects ◽  
Investment Appraisal ◽  
The Many

Purpose The purpose of this paper is to contribute to financial managers’ capital budgeting decision-making processes by proposing a new paradigm of capital investment appraisal. The expected return, required return structure of the proposed purchasing power return (PPR) methodology eliminates the many flaws associated with the competing internal rate of return (IRR) and modified IRR (MIRR) techniques. Design/methodology/approach The authors provide a new framework for examining long-term investment projects through a percentage return prism. Unlike that of IRR and MIRR, mathematical consistency with net present value (NPV) is a design requirement. Findings PPR eliminates the many flaws found in the IRR and MIRR methodologies, is mathematically consistent with NPV, and identifies positive-NPV investments forecasted to reduce the company’s purchasing power. These projects are acceptable under NPV, but flagged for additional review and potential rejection. Created to examine projects on a percentage return basis, PPR employs market-based inflation rates to convert all cash flows into constant purchasing power units of measure. From these units, an expected real return is estimated and compared to the project’s inflation-adjusted required return, resulting in an accept/reject decision consistent with that of NPV. Originality/value The proposed PPR is a new paradigm of capital investment appraisal that eliminates the many problems found in the IRR and MIRR techniques, is mathematically consistent with the NPV method, and helps financial decision makers examine investment projects on an expected percentage return basis. PPR also flags for further review projects expected to actually reduce the company’s purchasing power.

scholarly journals ESTIMATION OF LONG-TERM INVESTMENT PROJECTS WITH ENERGY-EFFICIENT SOLUTIONS BASED ON LIFE CYCLE COSTS INDICATOR

Vestnik MGSU ◽  
2015 ◽  
pp. 146-157 ◽  
Author(s):  
Viktor Ivanovich Bazhenov ◽  
Andrey Vadimovich Ustyuzhanin
Keyword(s):  
Life Cycle ◽  
Energy Efficient ◽  
Life Cycle Cost ◽  
Cost Effective ◽  
Cash Flows ◽  
Efficient Solutions ◽  
Investment Projects ◽  
Capital Costs ◽  
Technical Solutions

The starting stage of the tender procedures in Russia with the participation of foreign suppliers dictates the feasibility of the developments for economical methods directed to comparison of technical solutions on the construction field. The article describes the example of practical Life Cycle Cost (LCC) evaluations under respect of Present Value (PV) determination. These create a possibility for investor to estimate long-term projects (indicated as 25 years) as commercially profitable, taking into account inflation rate, interest rate, real discount rate (indicated as 5 %). For economic analysis air-blower station of WWTP was selected as a significant energy consumer. Technical variants for the comparison of blower types are: 1 - multistage without control, 2 - multistage with VFD control, 3 - single stage double vane control. The result of LCC estimation shows the last variant as most attractive or cost-effective for investments with economy of 17,2 % (variant 1) and 21,0 % (variant 2) under adopted duty conditions and evaluations of capital costs (Cic + Cin) with annual expenditure related (Ce+Co+Cm). The adopted duty conditions include daily and seasonal fluctuations of air flow. This was the reason for the adopted energy consumption as, kW∙h: 2158 (variant 1),1743...2201 (variant 2), 1058...1951 (variant 3). The article refers to Europump guide tables in order to simplify sophisticated factors search (Cp /Cn, df), which can be useful for economical analyses in Russia. Example of evaluations connected with energy-efficient solutions is given, but this reference involves the use of materials for the cases with resource savings, such as all types of fuel. In conclusion follows the assent to use LCC indicator jointly with the method of determining discounted cash flows, that will satisfy the investor’s need for interest source due to technical and economical comparisons.

scholarly journals Capital budgeting practices and political risk: evidence from Lebanon

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ahmed Bakri ◽  
Suzanne G. M. Fifield ◽  
David M. Power
Keyword(s):  
Capital Investment ◽  
Political Risk ◽  
Capital Budgeting ◽  
Capital Projects ◽  
Content Type ◽  
Corporate Managers ◽  
Investment Projects ◽  
Investment Appraisal ◽  
High Level ◽  
The Impact

Purpose This paper aims to examine how capital investment projects are appraised in Lebanon; whether the risk is incorporated into this process by Lebanese firms and the impact of political risk on the capital budgeting process. Design/methodology/approach This paper uses a questionnaire survey to investigate the capital budgeting practices of companies located in Lebanon, which is a country characterised by a high level of political risk. Findings Lebanese companies tend to use more than one method of investment appraisal and, increasingly, they are using sophisticated discounted cashflow techniques alongside the payback period. The most widely used methods to evaluate risk include scenario and sensitivity analysis. Finally, political risk plays an important role in the capital budgeting processes of Lebanese companies. Originality/value The paper reports on whether the methods of capital investment appraisal used throughout advanced Western economies are used in the context of an emerging economy. In addition, Lebanon is an ideal research site to study capital budgeting as the conflicts in the country of the past 50 years have required sizeable new expenditure on capital projects; the country is characterised by high levels of political risk which may lead corporate managers to use different approaches to investment appraisal and it provides an opportunity to study capital budgeting decisions by private, unlisted firms.

scholarly journals FINANCIAL MARKET OF UKRAINE - A MODERN LOOK AT THE ESSENCE OF THE CONCEPT

2019 ◽  
pp. 13-20
Author(s):  
I. Blahun
Keyword(s):  
Financial Market ◽  
Financial Institutions ◽  
Financial Services ◽  
Basic Function ◽  
Insurance Companies ◽  
Financial Resources ◽  
Financial Intermediaries ◽  
Financial Instruments ◽  
Investment Funds ◽  
The Impact

The article presents a modern view of understanding of "financial market" concept, as the development of financial technologies gradually influences the change of paradigm of its functioning, new financial institutions, institutions of market infrastructure, financial instruments are emerging, as well as the development of forms of alternative financing. On the base of the systematization, it is determined that the term "financial market" in the current scientific literature is considered from three positions, first as a mechanism of distribution of financial resources, secondly, as a system of economic relations, and thirdly as a set of markets and institutions. As a result of the research on the contrary to the popular opinion that the financial services market and the financial market are two separate markets, it has been substantiated that the financial services market is a part of the financial market, because financial instruments are formed through the provision of financial services. The financial market and the market of financial services have common subjects - financial intermediaries (banks, insurance companies, non-government pension funds, investment funds, etc.), but at the same time the objects of these two markets are different. Financial instruments are objects for financial markets, and services – for the market of financial services. Through the process of financial services providing, financial intermediaries ensure the fulfilment of the basic function of the financial market, which is the redistribution of financial resources in the economy, thereby creating financial assets, liabilities, etc., which is the basis for the formation of financial instruments. Taking into account of the impact of fintech on the development of the financial market, author's definition was presented in this work as a system of financial institutions (market subjects), which create the conditions for transactions with financial instruments of economic agents (market objects) using appropriate infrastructure and financial technologies. Transfer of flows of financial resources in the economy at national, subnational and global levels, adequate assess of financial risks and ability to absorb exogenous and endogenous shocks were determined as a purpose of the functioning of the financial market. Keywords: fintech, financial instruments, financial institutions, financial services market, financial system, financial services..

scholarly journals Interrelation between the Choice of Investment Trend and Subsequent Economic Results and Strategy of Sustainable Development in Organization

2021 ◽  
pp. 56-65
Author(s):  
E. U. Ganshina ◽  
I. L. Smirnova ◽  
S P. Ivanova
Keyword(s):  
Sustainable Development ◽  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Investment Projects ◽  
Industrial Organizations ◽  
Innovation Model ◽  
Corporate Social ◽  
Technological Opportunities ◽  
The Impact

The topic of making investment and choosing the most effective trends of investing money is becoming more acute for today’s organizations due to numerous crisis economic events and accompanying difficulties with capital reproduction. In researching options of investment special attention is paid to strategic aspects of alternative financial and technological opportunities of putting in resources and forecasting the horizon of recovery of the investment. Apart from this, the research interest is aroused by the impact of basic lines of enterprises’ investment on the level of their economic results together with trends of providing long-term sustainable development. The authors analyzed cases of the biggest Russian industrial organizations, identified correlation between investment flows within the frames of the organization and the effect of investment on the basis of consolidated accounting of these companies. The article analyzes some investment projects of the NMLK Group and the PAO Sibur, for instance, introduction of innovation model of making forecast concerning breaking-down of critical equipment and the system of corporate social responsibility. The authors made recommendations on prioritization of aspects of socially important trends of investment for today’s big companies, which could lead to raising efficiency of organizations’ work and thus to principles of sustainable development

scholarly journals The Impact of Financial Constraints on the Convertible Bond Announcement Returns

Economies ◽  
2019 ◽  
Vol 7 (2) ◽  
pp. 32 ◽  
Author(s):  
Chong-Chuo Chang ◽  
Tai-Yung Kam ◽  
Chih-Chung Chien ◽  
Wan Su
Keyword(s):  
Financial Constraints ◽  
Positive Impact ◽  
Cash Flows ◽  
Convertible Bonds ◽  
Convertible Bond ◽  
Short And Long Term ◽  
Long Term Performance ◽  
Term Performance ◽  
The Impact

As of now, very few research studies have examined the effects of financial constraints on the short- and long-term performances of companies after their announcement of convertible bonds. Due to asymmetric information, previous studies consider issuance of convertible bonds as negative news. As a result, the short- and long-term performances of companies generally decline after their convertible bond announcement. This study argues that when companies have investment plans, they are expected to have higher future cash flows. They will become increasingly more valuable regardless of the fact that they raise funds through the issue of convertible bonds (due to financial constraints), positively affecting the performance of companies. The results indicate that financial constraints have no effect on short-term performance, but did have a significantly positive impact on the long-term performance of companies after their issuance of convertible bonds.

scholarly journals SEQUENTIAL CAPITAL INVESTMENT DECISION MAKING UNDER EXTREME CASH FL OW SITUATIONS: EVIDENCE USING MONTE CARLO SIMULATION

2015 ◽  
Vol 16 (5) ◽  
pp. 877-900 ◽  
Author(s):  
Wenqing Zhang ◽  
Prasad Padmanabhan ◽  
Chia-Hsing Huang
Keyword(s):  
Monte Carlo Simulation ◽  
Monte Carlo ◽  
Capital Investment ◽  
Net Present Value ◽  
Capital Budgeting ◽  
Cash Flows ◽  
Present Value ◽  
Short Term ◽  
Value Analysis

Uncertainty influences a decision maker's choices when making sequential capital investment decisions. With the possibility of extremely negative cash inflows, firms may need to curtail operations significantly. Traditional Net Present Value analysis does not allow for efficient management of these problems. In addition, firm managers may behave irrationally by accepting negative Net Present Value projects in the short term. This paper presents a Monte Carlo simulation based model to provide policy insights on how to incorporate extreme cash flows and manager irrationality scenarios into the capital budgeting process. This paper presents evidence that firms with irrational managers and experiencing extremely negative cash flows may, under certain conditions, reap long term rewards associated with the acceptance of negative Net Present Value projects in the short term. These benefits are largest if cost ratios (discount rates) are small, or investment horizons are high. We argue that acceptance of short term negative Net Present Value projects implies the purchase of a long term real option which can generate positive long term cash flows under certain conditions.

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