公司财务,第十版,课后答案xWord下载.docx
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公司财务,第十版,课后答案xWord下载.docx
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NETPRESENTVALUEANDOTHERINVESTMENTRULES
AnswerstoConceptsReviewandCriticalThinkingQuestions
1.Assumingconventionalcashflows,apaybackperiodlessthantheproject’slifemeansthattheNPVispositiveforazerodiscountrate,butnothingmoredefinitivecanbesaid.Fordiscountratesgreaterthanzero,thepaybackperiodwillstillbelessthantheproject’slife,buttheNPVmaybepositive,zero,ornegative,dependingonwhetherthediscountrateislessthan,equalto,orgreaterthantheIRR.Thediscountedpaybackincludestheeffectoftherelevantdiscountrate.Ifaproject’sdiscountedpaybackperiodislessthantheproject’slife,itmustbethecasethatNPVispositive.
2.Assumingconventionalcashflows,ifaprojecthasapositiveNPVforacertaindiscountrate,thenitwillalsohaveapositiveNPVforazerodiscountrate;
thus,thepaybackperiodmustbelessthantheprojectlife.SincediscountedpaybackiscalculatedatthesamediscountrateasisNPV,ifNPVispositive,thediscountedpaybackperiodmustbelessthantheproject’slife.IfNPVispositive,thenthepresentvalueoffuturecashinflowsisgreaterthantheinitialinvestmentcost;
thus,PImustbegreaterthan1.IfNPVispositiveforacertaindiscountrateR,thenitwillbezeroforsomelargerdiscountrateR*;
thus,theIRRmustbegreaterthantherequiredreturn.
3.a.Paybackperiodissimplytheaccountingbreak-evenpointofaseriesofcashflows.Toactuallycomputethepaybackperiod,itisassumedthatanycashflowoccurringduringagivenperiodisrealizedcontinuouslythroughouttheperiod,andnotatasinglepointintime.Thepaybackisthenthepointintimefortheseriesofcashflowswhentheinitialcashoutlaysarefullyrecovered.Givensomepredeterminedcutoffforthepaybackperiod,thedecisionruleistoacceptprojectsthatpaybackbeforethiscutoff,andrejectprojectsthattakelongertopayback.Theworstproblemassociatedwiththepaybackperiodisthatitignoresthetimevalueofmoney.Inaddition,theselectionofahurdlepointforthepaybackperiodisanarbitraryexercisethatlacksanysteadfastruleormethod.Thepaybackperiodisbiasedtowardsshort-termprojects;
itfullyignoresanycashflowsthatoccurafterthecutoffpoint.
b.TheIRRisthediscountratethatcausestheNPVofaseriesofcashflowstobeidenticallyzero.IRRcanthusbeinterpretedasafinancialbreak-evenrateofreturn;
attheIRRdiscountrate,thenetvalueoftheprojectiszero.Theacceptanceandrejectioncriteriaare:
IfC0<
0andallfuturecashflowsarepositive,accepttheprojectiftheinternalrateofreturnisgreaterthanorequaltothediscountrate.
0andallfuturecashflowsarepositive,rejecttheprojectiftheinternalrateofreturnislessthanthediscountrate.
IfC0>
0andallfuturecashflowsarenegative,accepttheprojectiftheinternalrateofreturnislessthanorequaltothediscountrate.
0andallfuturecashflowsarenegative,rejecttheprojectiftheinternalrateofreturnisgreaterthanthediscountrate.
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2013byMcGraw-HillEducation.Thisisproprietarymaterialsolelyforauthorizedinstructoruse.Notauthorizedforsaleordistributioninanymanner.Thisdocumentmaynotbecopied,scanned,duplicated,forwarded,distributed,orpostedonawebsite,inwholeorpart.
IRRisthediscountratethatcausesNPVforaseriesofcashflowstobezero.NPVispreferredinallsituationstoIRR;
IRRcanleadtoambiguousresultsiftherearenon-conventionalcashflows,anditalsomayambiguouslyranksomemutuallyexclusiveprojects.However,forstand-aloneprojectswithconventionalcashflows,IRRandNPVareinterchangeabletechniques.
c.Theprofitabilityindexisthepresentvalueofcashinflowsrelativetotheprojectcost.Assuch,itisabenefit/costratio,providingameasureoftherelativeprofitabilityofaproject.TheprofitabilityindexdecisionruleistoacceptprojectswithaPIgreaterthanone,andtorejectprojectswithaPIlessthanone.Theprofitabilityindexcanbeexpressedas:
PI=(NPV+cost)/cost=1+(NPV/cost).IfafirmhasabasketofpositiveNPVprojectsandissubjecttocapitalrationing,PImayprovideagoodrankingmeasureoftheprojects,indicatingthe“bangforthebuck”ofeachparticularproject.
d.NPVissimplythepresentvalueofaproject’scashflows,includingtheinitialoutlay.NPVspecificallymeasures,afterconsideringthetimevalueofmoney,thenetincreaseordecreaseinfirmwealthduetotheproject.ThedecisionruleistoacceptprojectsthathaveapositiveNPV,andrejectprojectswithanegativeNPV.NPVissuperiortotheothermethodsofanalysispresentedinthetextbecauseithasnoseriousflaws.
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