Unit 4 Project Analysis N Evaluation.docx
- 文档编号:28138891
- 上传时间:2023-07-08
- 格式:DOCX
- 页数:22
- 大小:25.21KB
Unit 4 Project Analysis N Evaluation.docx
《Unit 4 Project Analysis N Evaluation.docx》由会员分享,可在线阅读,更多相关《Unit 4 Project Analysis N Evaluation.docx(22页珍藏版)》请在冰豆网上搜索。
Unit4ProjectAnalysisNEvaluation
UNIT4
PROJECTANALYSISANDEVALUATION
4.1EvaluatingNPVEstimates
Aninvestmenthasapositivenetpresentvalueifitsmarketvalueexceedsitscost.EstimatedNPVispositiveisdefinitelyagoodsign.However,therearetwocircumstancesunderwhichadiscountedcashflowanalysiscouldleadustoconcludethataprojecthasapositiveNPV.ThefirstpossibilityisthattheprojectreallydoeshaveapositiveNPVandthat’sfine.ThesecondpossibilityisthattheprojectmayappeartohaveapositiveNPVbecauseourestimateisinaccurate.
4.1.1ForecastingRisk
ThekeyinputintoaDCF(DiscountedCashFlows)analysisareprojectedcashflows.Iftheseprojectsareseriouslyinerror,thenwehaveaclassicGIGO(garbage-in,garbage-out).
Thepossibilitythatwemakeabaddecisionbecauseoferrorsintheprojectedcashflowsiscalledforecastingrisk.Becauseofforecastingrisk,thereisthedangerthatwemightthinkthataprojecthasapositiveNPVwhenitreallydoesnot.Thishappensifweareoverlyoptimisticaboutthefutureand,asaresult,ourprojectedcashflowsdon’trealisticallyreflectthepossiblefuturecashflows.
4.1.2SourcesofValue
Thefirstlineofdefenseagainstforecastingriskissimplytoask:
“WhatisitaboutthisinvestmentthatleadstoapositiveNPV?
.Weshouldbeabletopointtosomethingspecificasthesourceofvalue.
Someofthespecificcouldbe:
1.Arewecertainthatournewproductissignificantlybetterthanthatofthecompetitor?
2.Canwetrulymanufactureatalowercost?
3.Canwedistributeourproductsmoreeffectively?
.
4.Canweidentifyundevelopedmarketniches?
.
5.Canwegaincontrolofthemarket?
4.2ScenarioAndOther“Whatif”Analyses
ThebasicapproachtoevaluatingcashflowandNPVestimatesinvolvesasking“Whatif”questions.Thegoalhereistoassessthedegreeofforecastingriskandtoidentifythosecomponentsthatarethemostcriticaltothesuccessorfailureofaninvestment.
4.2.1BasicProcedureinScenarioAnalyses
ThefirstthingtodoininvestigatinganewprojectistoestimatetheNPVbasedonprojectedcashflows.Thisiscalledthebasecase.
Secondly,wewouldrecognizethatthereapossibilityoferrorinthosecashflowsprojections.
Thirdly,weinvestigatetheimpactofdifferentassumptionsaboutthefutureontheestimates.Onewaytoorganizethisinvestigationistoputanupperandlowerboundonthevariouscomponents.
E.g.
Weforecastthesalesat6000unitsperyearandwearerelativelycertainthatourestimateisaccuratewithin500unitsineitherdirection.Similarly,sellingpriceisestimatedtobe$80$5,variablecostperunitis$60$2,expenditureperyearis$50,000$5,000.Theinitialcostoftheinvestmentis$200,000andhasafive-yearlifespanandhasnosalvagevalue.Therequiredrateofreturnis12percentandtaxis34percent.Theaboveinformationcanbesummarizedasshown.
LowerBound
Basecase
UpperBound
Unitsales
5,500
6,000
6,500
Priceperunit
$75
$80
$85
Variablecostperunit
$58
$60
$62
Expenditureperyear
$45,000
$50,000
$55,000
Depreciation
$40,000
$40,000
$40,000
Depreciationperyear=$200,000/5
=$40,000
Withthisinformation,wecancalculatethebase-caseNPVbycalculatingthenetincome.
Sales=Unitsalesxprice
6,000x80=$480,000
TotalVariablecost=Unitsalesxvariablecostperunit
6,000x60=360,000
Expenditure
50,000
Depreciation
40,000
EBIT(EarningBeforeInterestandTax)
$30,000
Tax@34%
10,200
NetIncome
$19,800
4.2.2ScenarioAnalysis
Thebasicformofwhat-ifanalysisiscalledthescenarioanalysis.WhatwedoisinvestigatethechangesinourNPVestimatesthatresultfromaskingquestionslike“Whatiftheunitssalesrealisticallyshouldbeprojectedat5,500unitsinsteadof6,000
Oncewestartlookingatalternativescenarios,wemightfindthatmostoftheplausibleonesresultinpositiveNPVs.Inthiscase,wehavesomeconfidenceinproceedingwiththeproject.Ifasubstantialpercentageofthescenarioslookbad,thenthedegreeofforecastingriskishighandfurtherinvestigationisinorder.
Thereareanumberofpossiblescenarioswecouldconsider.Agoodplacetostartistheworst-casescenario.ThiswilltellustheminimumNPVoftheproject.Ifthiswerepositive,wewouldbeingoodshape.Wecanalsodeterminetheotherextreme,thebestcase.ThisputsanupperboundontheNPV.
Togettheworsecase,weassigntheleastfavorablevaluetoeachoftheitem.Thismeanslowestvaluesforitemslikeunitssold,priceperunitandthehighestvalueforcosts.
Considerthesameexamplegivenearlier.
WorstCase
BestCase
Unitsales
5,500
6,500
Priceperunit
$75
$85
Variablecostperunit
$62
$58
Fixedcosts
$55,000
$45,000
Withtheaboveinformation,wecansimilarlycalculatethecashflows,thenetincome,theNPV.
4.2.3SensitivityAnalysis.
SensitivityAnalysisisavariationonscenarioanalysisthatisusefulinpinpointingtheareaswhereforecastingriskisespeciallysevere,ThebasicideawithasensitivityanalysisistofreezeallotherthevariablesexceptoneandthenseehowsensitiveourestimateofNPVistochangesinthatonevariable.IfourNPVestimateturnsouttobeverysensitivetorelativelysmallchangesinthatvariable,thentheforecastingriskassociatedwiththatvariableisveryhigh.
Inourexampleabove,wecangobacktothebasecaseandthencalculatethecashflowsandNPVusingthelargestandsmallestunitsalesfigures,withtherestofthevariableremainingconstant.Sincetherearemanypossibility,normally,suchcalculationisdonewiththeaidofcomputer.
Consideranotherexamplewithlessvariablestoconsiderandcouldbecalculatedwithouttheaidofacomputer.
E.g.
Anewprojecthasthefollowingforecasts:
InitialOutlay
$12,000
Life
4years
Netannualcashinflows
4,500
Discountrate
14%
Ignoretaxation.
Thecalculationsofthesensitivityoftheprojecttochangesineachvariableareasfollows:
Changeintheinitialoutlay:
(Cashinflowsremainthesame)
Lettheinitialoutlaybechangedto$xwhichwillgiveazeroNPV.
-x+4yearannuityof$4,500at14%=0
-x+4,500x2.914=0
-x+13,113=0
x=$13,113
Thechangeintheoutlayisfrom$12,000to$13,113,thatis,achangeof$1,113
Thepercentagechangeinoutlay=1,113x100
12,000
=9.28%
ChangeintheLifeoftheProject(InitialOutlayremainthesame)
Letthelifeoftheprojectbeyyears.
-12,000+yyearsannuityat14%=0
yyearsannuityat14%=12,000
$4,500xPVIFA=12,000
PVIFA=12,000
4,500
=2.667
Atthediscountrateof14%,notice:
3years
yyears
4years
2.322
2.667
2.914
Bymethodoflinearinterpolation:
.y-3=.4-3.
2.667–2.3222.914–2.322
y–3=1(0.345)
0.592
y=3.58
Thechangeinthelifespanoftheprojectisfrom4yearsto3.58,adecreaseif0.42years.
Percentagechangeinthelifespan=0.42x100
4
=10.5%
ChangeintheAnnualcashflow.
Lettheannualcashflowbechangedto$Bperyear
NPV=-12,000+$BxPVAF(4years,14%)
0=-12,0000+$Bx2.914
$B=4118
ThereforePercentagechangeinannualcashflow
=(4500–4118)x100
4500
=8.4%
ChangeintheInterestrateperyear
LettheinterestratebeH%peryear
NPV=-12,000+45000xPVAF(4years,H%)
PVAF(4years,H%)=12,000
4500
Atthediscountrateof14%,notice:
18%
H%
19%
2.690
2.667
2.639
Bymethodoflinearinterpolation:
.H-18=.19-18.
2.667–2.6902.639–2.690
H=18.451
Percentagechangeininterest=(18.451–14)x100
14
=31.79%
Conclusion:
Theprojectismostsensitivetothechangeintheinterestrate.
4.2.4SimulationAnalysis
Ifwewanttoletalltheitemsvaryatthesametime,wehavetoconsideraverylargenumberofscenariosandhere,computerassistanceiscertainlyneeded.Inthesimplestcase,westartwithunitsalesandassumethatanyvalueof5,500to6,500(considertheearlierexample),Wecanstartbyrandomlypickingonevalue(orbyinstructingthecomputertodoso).Wethenrandomlypickaprice,avariablecostandsoon.
Oncewehavevaluesforalltherelevantcomponents,wecalculatetheNPV.Werepeatthissequenceasmuchaswedesire,probablyseveralthousandtimes.TheresultisalargenumberofNPVestimateswecansummarizebycalculatingtheaveragevalueandsomemeasureofhowspreadoutthedifferencepossibilitiesare.
4.3CapitalRationing
Capitalrationingissaidtoexistwhenwehaveseveralprofitable(positiveNPV)investmentsavailablebutwecannotgettheneededfundstoundertakethem.Forexample,thedivisionmanagerforalargecorporationmightidentifya$3million,a$4millionsanda$5millionexcellentprofitableprojects,butfindthatforwhateverreasons,wecanonlyspend$6million.Oneofwaystoovercomethisproblemisthroughcapitalrationing.
4.4TypesandSourcesofCapitalRationing
TherearetwotypesofcapitalrationingandtheyareInternalandExternalCapitalrationing.
4.4.1InternalCapitalRationing
InternalCapitalrationingiscausedbythemanagementpursuingpolicieswhichlimitpossiblecapitalallocationtonewprojectevenifthereiswillingsupplyoffinancefromwithinthecompanyorfromexternalsources.
Internalcapitalrationingisunlikelytobeintheshareholders’bestinterestinlongtermsinceitmeansthatprofitableprojectswhichcouldbeachievedarenowforgone.
Managementmaybelievethatsomeartificiallimitationonthecapitalexpendit
- 配套讲稿:
如PPT文件的首页显示word图标,表示该PPT已包含配套word讲稿。双击word图标可打开word文档。
- 特殊限制:
部分文档作品中含有的国旗、国徽等图片,仅作为作品整体效果示例展示,禁止商用。设计者仅对作品中独创性部分享有著作权。
- 关 键 词:
- Unit Project Analysis Evaluation
![提示](https://static.bdocx.com/images/bang_tan.gif)