Valuation: The Art and Science of Corporate Investment Decisions, 3rd edition

Published by Pearson (December 24, 2014) © 2016

  • Sheridan Titman University of Texas at Austin
  • John D. Martin Baylor University

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For upper-division undergraduate and MBA students as well as business professionals.

A Holistic Approach to Project and Enterprise Valuation
The Art and Science of Corporate Investment Decisions provides an up-to-date, integrated treatment of the valuation of investment opportunities. Taking both industry practice and recent advances in valuation methods into consideration, this text introduces students to a broad spectrum of valuation approaches and equips them to make wise investment decisions.

The 3rd Edition exposes readers to the latest valuation tools being used in the industry. Practical examples are offered throughout the text to help students understand core principles in the context of realistic situations. Using the accompanying spreadsheets and simulation tools, students will be able to glean information from a variety of sources, construct models that utilize this information, and then summarize their analysis in a meaningful way.

Expose Students to the Latest Valuation Tools

  • NEW! End-of-Chapter Exercises, Problems and Mini-Cases help readers solidify their understanding of key concepts. The material is practical and ranges in difficulty from introductory exercises to moderate-length case studies with multiple parts designed to delve more deeply into issues.
  • NEW! Lecture Capture Videos have been created for each chapter to focus on key examples. These videos are short (five to ten minutes) and give students a better understanding of the text examples.
  • Spreadsheet Usage and Support aid students in solving end-of-chapter problems. We provide templates for use in solving these problems on the Web site accompanying this book at www.pearsonhighered.com/titman_martin.
  • Simulation Software greatly enhances the reader's learning experience. To facilitate the use of Monte Carlo simulation, an access code to Crystal Ball software has been included with this text. Crystal Ball is an add-in to spreadsheet software that allows you to perform Monte Carlo simulations by automatically calculating thousands of different "what-if" scenarios, saving the inputs and results of each calculation as individual cases.

Enrich Text Presentation with Extensions and Insights

  • Industry Insights delve more deeply into how the tools developed in the book are used in practice.
  • Technical Insights provide further explanations of mathematics, methodologies, and analytical tools.
  • Behavioral Insights focus on irrational choices and biases that affect how investment choices are made in practice.
  • Practitioner Insights provide perspectives from a broad spectrum of professionals who use the various valuation methodologies discussed in the text.
  • Did you know? side comments provide little slices of interesting financial lore.

Stay Up-to-Date on the Newest Information in the Field

  • Chapter 2: New discussions of relevant cash flows, calculation of free cash flows, forecasting of future free cash flows, the use of financial statements to derive cash flow estimates, and key learning points from the analysis of free cash flow and pro forma financial statements.
  • Chapter 4: New material addressing capital structure weights, decomposition of risk and required returns, levering and unlevering beta, and geometric versus arithmetic mean.
  • Chapter 9: Further distinctions regarding valuing a project and firm, new Technical Insight on short versus long planning periods, and revised GRC growth strategy valuation analysis.
  • Chapter 10: Industry Insight on the biggest buyout deals of all time.
  • Chapter 12: New discussion of hedging the price of the risk of delaying the decision to invest, more complicated options and the incentive to wait to invest, hedging oil price risk, and changes in model parameters and real option values.
  • End-of-Chapter Exercises, Problems and Mini-Cases help readers solidify their understanding of key concepts. The material is practical and ranges in difficulty from introductory exercises to moderate-length case studies with multiple parts designed to delve more deeply into issues.
  • Lecture Capture Videos have been created for each chapter to focus on key examples. These videos are short (five to ten minutes) and give students a better understanding of the text examples.
  • Discussions of relevant cash flows in Chapter 2
  • Material addressing capital structure weights, decomposition of risk and required returns, levering and unlevering beta, and geometric versus arithmetic mean in Chapter 4.
  • Discussion of hedging the price of the risk of delaying the decision to invest in Chapter 12.

Brief Contents

  1. Overview of Valuation

PART I: PROJECT ANALYSIS USING DISCOUNTED CASH FLOW (DCF)

  1. Forecasting and Valuing Cash Flows
  2. Project Risk Analysis

PART II: COST OF CAPITAL

  1. Estimating a Firm’s Cost of Capital
  2. Estimating Required Rates of Return for Projects

PART III: FINANCIAL STATEMENTS AND VALUATION

  1. Forecasting Financial Performance
  2. Earnings Dilution, Incentive Compensation, and Project Selection

PART IV: ENTERPRISE VALUATION

  1. Relative Valuation Using Market Comparables
  2. Enterprise Valuation
  3. Valuation in a Private Equity Setting

PART V : FUTURES, OPTIONS, AND THE VALUATION OF REAL INVESTMENTS

  1. Using Futures and Options to Value Real Investments
  2. Managerial Flexibility and Project Valuation: Real Options
  3. Strategic Options: Evaluating Strategic Opportunities

SHERIDAN TITMAN

Sheridan Titman holds the McAllister Centennial Chair in Financial Services at the University of Texas. He has a B.S. from the University of Colorado and an M.S. and Ph.D. from Carnegie Mellon University. Prior to joining the faculty at the University of Texas, Professor Titman was a Professor at UCLA, the Hong Kong University of Science and Technology, and Boston College and spent the 1988–89 academic year in Washington, D.C., as the special assistant to the Assistant Secretary of the Treasury for Economic Policy. In addition, he has consulted for a variety of financial institutions and corporations. He has served on the editorial boards of the leading academic finance and real estate journals, was an editor of the Review of Financial Studies, and was the founding editor of the International Review of Finance. He has served as President of the American Finance Association and the Western Finance Association, and as a director of the American Finance Association, the Asia Pacific Finance Association, the Western Finance Association, and the Financial Management Association and as the President of the Western Finance Association. Professor Titman has published more than 50 articles in both academic and professional journals and a book entitled Financial Markets and Corporate Strategy. He has received a number of awards for his research excellence and is a Fellow of the Financial Management Association and a Research Associate of the National Bureau of Economic Re-search.

JOHN MARTIN

John Martin holds the Carr P. Collins Chair in Finance in the Hankamer School of Business at Baylor University, where he teaches in the Baylor EMBA programs. Over his career, he has published more than 50 articles in the leading finance journals and served in a number of editorial positions, including the coeditorship of the FMA Survey and Synthesis Series for the Oxford University Press. In addition, he has coauthored the following books: Financial Management, 12th edition (Prentice Hall Publishing Company); Foundations of Finance, 8th edition (Prentice Hall Publishing Company); Financial Analysis (McGraw-Hill Publishing Company); The Theory of Finance (Dryden Press); and Value Based Management (Harvard Business School Press/Oxford University Press).

John and Sally have two wonderful sons, the world's finest daughter-in-law (their youngest son isn't married), and two beautiful grandsons who visit them often on their ranch outside of Crawford, Texas, where they raise hay and enjoy life with their chickens, dogs (Jack, Minnie, and Pearl) and miniature donkeys (Lottie, Dottie, Wavy, Gravy, and Biscuit).

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