investment strategy, and economic rents

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1、confirmingpagesPART3CHAPTER"""""11BESTPRACTICESINCAPITALBUDGETINGInvestment,Strategy,andEconomicRents!Whyisamanagerwhohaslearnedaboutdiscountedwherecorporatestrategyandfinancecometogether.cashflows(DCF)likeababywithahammer?Answer:GoodstrategypositionsthefirmtogeneratethemostBecausetoababywithahamme

2、r,everythinglookslikevaluefromitsassetsandgrowthopportunities.Theanail.searchforgoodstrategystartswithunderstandinghowOurpointisthatyoushouldnotfocusontheyourfirmstacksupversusyourcompetitors,andhowarithmeticofDCFandtherebyignoretheforecaststheywillrespondtoyourinitiatives.Areyourcash-flowthatareth

3、ebasisofeveryinvestmentdecision.Seniorforecastsrealisticinyourcompetitiveenvironment?managersarecontinuouslybombardedwithrequestsWhateffectswillyourcompetitors’actionshaveontheforfundsforcapitalexpenditures.AlltheserequestsNPVsofyourinvestments?aresupportedwithdetailedDCFanalysesshowingThefirstsect

4、ioninthischapterreviewscertainthattheprojectshavepositiveNPVs.1How,then,cancommonpitfallsincapitalbudgeting,notablythemanagersdistinguishtheNPVsthataretrulypositivetendencytoapplyDCFwhenmarketvaluesarealreadyfromthosethataremerelytheresultofforecastingavailableandnoDCFcalculationsareneeded.Theerror

5、s?Wesuggestthattheyshouldasksomeprobingsecondsectioncoverstheeconomicrentsthatunderliequestionsaboutthepossiblesourcesofeconomicallpositive-NPVinvestments.Thethirdsectionpresentsgain.acasestudydescribinghowMarvinEnterprises,theTomakegoodinvestmentdecisions,youneedtogargleblastercompany,analyzedthei

6、ntroductionofaunderstandyourfirm’scompetitiveadvantages.Thisisradicallynewproduct."""""11-1LookFirsttoMarketValuesLetussupposethatyouhavepersuadedallyourprojectsponsorstogivehonestforecasts.Althoughthoseforecastsareunbiased,theyarestilllikelytocontainerrors,somepositiveandothersnegative.Theaveragee

7、rrorwillbezero,butthatislittleconsolationbecauseyouwanttoacceptonlyprojectswithtrulysuperiorprofitability.Think,forexample,ofwhatwouldhappenifyouweretojotdownyourestimatesofthecashflowsfromoperatingvariousl