Capital Budgeting
Financial Appraisal of
Investment Projects
Don Dayananda,
Richard Irons, Steve Harrison,
John Herbohn and Patrick Rowland
PUBLISHED BY THE PRESS SYNDICATE OF THE UNIVERSITY OF CAMBRIDGE
The Pitt Building, Trumpington Street, Cambridge, United Kingdom
CAMBRIDGE UNIVERSITY PRESS
The Edinburgh Building, Cambridge CB2 2RU, UK
40 West 20th Street, New York, NY 10011-4211, USA
477 Williamstown Road, Port Melbourne, VIC 3207, Australia
Ruiz de AlarcoĢn 13, 28014 Madrid, Spain
Dock House, The Waterfront, Cape Town 8001, South Africa
http://www.cambridge.org
C© Don Dayananda, Richard Irons, Steve Harrison, John Herbohn and Patrick Rowland 2002
This book is in copyright. Subject to statutory exception
and to the provisions of relevant collective licensing agreements,
no reproduction of any part may take place without
the written permission of Cambridge University Press.
First published 2002
Printed in the United Kingdom at the University Press, Cambridge
Typeface Times Roman 10/13 pt
System LATEX2ε
[TB]
A catalogue record for this book is available from the British Library
Library of Congress Cataloguing in Publication data
Capital budgeting: financial appraisal of investment projects / Don Dayananda ... [et al.].
p.
cm.
Includes bibliographical references and index.
ISBN 0 521 81782 X (hb) – ISBN 0 521 52098 3 (pb)
1. Capital budget.
2. Capital investments.
I. Dayananda, Don.
HG4028.C4 C346 2002
658.15′242 – dc21
2002019249
ISBN 0 521 81782 X hardback
ISBN 0 521 52098 3 paperback
Contents
List of figures
page xiii
List of tables
xiv
Preface
xvii
1 Capital budgeting: an overview
1
Study objectives
2
Shareholder wealth maximization and net present value
3
Classification of investment projects
4
The capital budgeting process
5
Organization of the book
9
Concluding comments
10
Review questions
11
2 Project cash flows
12
Study objectives
14
Essentials in cash flow identification
14
Example 2.1
15
Example 2.2
16
Asset expansion project cash flows
23
Example 2.3. The Delta Project
27
Asset replacement project c