CH11TheBasicsofCapitalBudgeting(财务管理,英文版).pptx

CH11TheBasicsofCapitalBudgeting(财务管理,英文版).pptx

《CH11TheBasicsofCapitalBudgeting(财务管理,英文版).pptx》由会员分享，可在线阅读，更多相关《CH11TheBasicsofCapitalBudgeting(财务管理,英文版).pptx（42页珍藏版）》请在冰豆网上搜索。

,Shouldwebuildthisplant?

CHAPTER11TheBasicsofCapitalBudgeting,Whatiscapitalbudgeting?

Analysisofpotentialadditionstofixedassets.Long-termdecisions;involvelargeexpenditures.Veryimportanttofirmsfuture.,Steps,1.EstimateCFs（inflows&outflows）.2.AssessriskinessofCFs.3.Determinek=WACC（adj.）.4.FindNPVand/orIRR.5.AcceptifNPV0and/orIRRWACC.,Whatisthedifferencebetweenindependentandmutuallyexclusiveprojects?

Projectsare:

independent,ifthecashflowsofoneareunaffectedbytheacceptanceoftheother.mutuallyexclusive,ifthecashflowsofonecanbeadverselyimpactedbytheacceptanceoftheother.,AnExampleofMutuallyExclusiveProjects,BRIDGEvs.BOATtogetproductsacrossariver.,NormalCashFlowProject:

Cost（negativeCF）followedbyaseriesofpositivecashinflows.Onechangeofsigns.,NonnormalCashFlowProject:

Twoormorechangesofsigns.Mostcommon:

Cost（negativeCF）,thenstringofpositiveCFs,thencosttocloseproject.Nuclearpowerplant,stripmine.,Inflow（+）orOutflow（-）inYear,0,1,2,3,4,5,N,NN,-,+,+,+,+,+,N,-,+,+,+,+,-,NN,-,-,-,+,+,+,N,+,+,+,-,-,-,N,-,+,+,-,+,-,NN,Whatisthepaybackperiod?

Thenumberofyearsrequiredtorecoveraprojectscost,orhowlongdoesittaketogetourmoneyback?

PaybackforProjectL（Long:

LargeCFsinlateryears）,10,60,0,1,2,3,-100,=,CFt,Cumulative,-100,-90,-30,50,PaybackL,2+30/80=2.375years,0,100,2.4,80,ProjectS（Short:

CFscomequickly）,70,20,50,0,1,2,3,-100,CFt,Cumulative,-100,-30,20,40,PaybackL,1+30/50=1.6years,100,0,1.6,=,StrengthsofPayback:

1.Providesanindicationofaprojectsriskandliquidity.2.Easytocalculateandunderstand.,WeaknessesofPayback:

1.IgnorestheTVM.2.IgnoresCFsoccurringafterthepaybackperiod.,DiscountedPayback:

UsesdiscountedratherthanrawCFs.,10,80,60,0,1,2,3,CFt,Cumulative,-100,-90.91,-41.32,18.79,Discountedpayback,2+41.32/60.11=2.7years,PVCFt,-100,-100,10%,9.09,49.59,60.11,=,Recoverinvest.+cap.costsin2.7years.,NPV:

SumofthePVsofinflowsandoutflows.,WhatsProjectLsNPV?

10,80,60,0,1,2,3,10%,ProjectL:

-100.00,9.09,49.59,60.11,18.79=NPVL,NPVS=$19.98.,CalculatorSolution,EnterinCFLOforL:

-10010608010,CF0,CF1,NPV,CF2,CF3,I,=18.78=NPVL,RationalefortheNPVMethod,NPV=PVinflowsCost=Netgaininwealth.AcceptprojectifNPV0.ChoosebetweenmutuallyexclusiveprojectsonbasisofhigherNPV.Addsmostvalue.,UsingNPVmethod,whichproject（s）shouldbeaccepted?

IfProjectsSandLaremutuallyexclusive,acceptSbecauseNPVsNPVL.IfSNPV0.,InternalRateofReturn:

IRR,0,1,2,3,CF0,CF1,CF2,CF3,Cost,Inflows,IRRisthediscountratethatforcesPVinflows=cost.ThisisthesameasforcingNPV=0.,NPV:

Enterk,solveforNPV.,IRR:

EnterNPV=0,solveforIRR.,WhatsProjectLsIRR?

10,80,60,0,1,2,3,IRR=?

-100.00,PV3,PV2,PV1,0=NPV,EnterCFsinCFLO,thenpressIRR:

IRRL=18.13%.,IRRS=23.56%.,40,40,40,0,1,2,3,IRR=?

FindIRRifCFsareconstant:

-100,Or,withCFLO,enterCFsandpressIRR=9.70%.,3-1004009.70%,INPUTS,OUTPUT,N,I/YR,PV,PMT,FV,90,1090,90,0,1,2,10,IRR=?

Q.HowisaprojectsIRRrelatedtoabondsYTM?

A.Theyarethesamething.AbondsYTMistheIRRifyouinvestinthebond.,-1134.2,IRR=7.08%（useTVMorCFLO）.,.,RationalefortheIRRMethod,IfIRRWACC,thentheprojectsrateofreturnisgreaterthanitscost-somereturnisleftovertobooststockholdersreturns.Example:

WACC=10%,IRR=15%.Profitable.,IRRAcceptanceCriteria,IfIRRk,acceptproject.IfIRRk,rejectproject.,DecisionsonProjectsSandLperIRR,IfSandLareindependent,acceptboth.IRRsk=10%.IfSandLaremutuallyexclusive,acceptSbecauseIRRSIRRL.,ConstructNPVProfiles,EnterCFsinCFLOandfindNPVLandNPVSatdifferentdiscountrates:

k05101520,NPVL5033197（4,NPVS402920125,（4）,-10,0,10,20,30,40,50,60,5,10,15,20,23.6,NPV（$）,DiscountRate（%）,IRRL=18.1%,IRRS=23.6%,CrossoverPoint=8.7%,k05101520,NPVL5033197（4）,NPVS402920125,S,L,.,.,.,.,.,.,.,.,.,.,.,NPVandIRRalwaysleadtothesameaccept/rejectdecisionforindependentprojects:

kIRRandNPV0.Reject.,NPV（$）,k（%）,IRR,IRRkandNPV0Accept.,MutuallyExclusiveProjects,k8.7k,NPV,%,IRRS,IRRL,L,S,kNPVS,IRRSIRRLCONFLICT,k8.7:

NPVSNPVL,IRRSIRRLNOCONFLICT,ToFindtheCrossoverRate,1.Findcashflowdifferencesbetweentheprojects.Seedataatbeginningofthecase.2.EnterthesedifferencesinCFLOregister,thenpressIRR.Crossoverrate=8.68%,roundedto8.7%.3.CansubtractSfromLorviceversa,butbettertohavefirstCFnegative.4.Ifprofilesdontcross,oneprojectdominatestheother.,TwoReasonsNPVProfilesCross,1.Size（scale）differences.Smallerprojectfreesupfundsatt=0forinvestment.Thehighertheopportunitycost,themorevaluablethesefunds,sohighkfavorssmallprojects.2.Timingdifferences.ProjectwithfasterpaybackprovidesmoreCFinearlyyearsforreinvestment.Ifkishigh,earlyCFespeciallygood,NPVSNPVL.,ReinvestmentRateAssumptions,NPVassumesreinvestatk（opportunitycostofcapital）.IRRassumesreinvestatIRR.Reinvestatopportunitycost,k,ismorerealistic,soNPVmethodisbest.NPVshouldbeusedtochoosebetweenmutuallyexclusiveprojects.,Managerslikerates-preferIRRtoNPVcomparisons.CanwegivethemabetterIRR?

Yes,MIRRisthediscountratethatcausesthePVofaprojectsterminalvalue（TV）toequalthePVofcosts.TVisfoundbycompoundinginflowsatWACC.,Thus,MIRRassumescashinflowsarereinvestedatWACC.,MIRR=16.5%,10.0,80.0,60.0,0,1,2,3,10%,66.012.1,158.1,MIRRforProjectL（k=10%）,-100.0,10%,10%,TVinflows,-100.0,PVoutflows,MIRRL=16.5%,$100=,$158.1（1+MIRRL）3,TofindTVwithHP10B,enterinCFLO:

I=10,NPV=118.78=PVofinflows.,EnterPV=-118.78,N=3,I=10,PMT=0.PressFV=158.10=FVofinflows.,EnterFV=158.10,PV=-100,PMT=0,N=3.PressI=16.50%=MIRR.,CF0=0,CF1=10,CF2=60,CF3=80,WhyuseMIRRversusIRR?

MIRRcorrectlyassumesreinvestmentatopportunitycost=WACC.MIRRalsoavoidstheproblemofmultipleIRRs.Managerslikerateofreturncomparisons,andMIRRisbetterforthisthanIRR.,PavilionProject:

NPVandIRR?

5,000,-5,000,0,1,2,k=10%,-800,EnterCFsinCFLO,enterI=10.,NPV=-386.78,IRR=ERROR.Why?

WegotIRR=ERRORbecausethereare2IRRs.NonnormalCFs-twosignchanges.Heresapicture:

NPVProfile,450,-800,0,400,100,IRR2=400%,IRR1=25%,k,NPV,LogicofMultipleIRRs,1.Atverylowdiscountrates,thePVofCF2islarge&negative,soNPV0.4.Result:

2IRRs.,CouldfindIRRwithcalculator:

1.EnterCFsasbefore.2.Entera“guess”astoIRRbystoringtheguess.Try10%:

10STOIRR=25%=lowerIRRNowguesslargeIRR,say,200:

200STOIRR=400%=upperIRR,WhentherearenonnormalCFsandmorethanoneIRR,useMIRR:

0,1,2,-800,000,5,000,000,-5,000,000,PVoutflows10%=-4,932,231.40.,TVinflows10%=5,500,000.00.,MIRR=5.6%,AcceptProjectP?

NO.RejectbecauseMIRR=5.6%k=10%.Also,ifMIRRk,NPVwillbenegative:

NPV=-$386,777.,