运营管理第14版蔡斯ipptappc

FINANCIAL ANALYSIS Appendix C Copyright 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin Learning Objectives LOC1: Evaluate capital investments using the various types of cost, risk and expected value, and depreciation. C-2 Concepts and Definitions Fixed costs: any expense that remains constant regardless of the level of output Variable costs: expenses that fluctuate directly with changes in the level of output Sunk costs: past expenses or investments that have no salvage value and therefore should not be taken into account in considering investment alternatives C-3 Concepts and Definitions (continued) Opportunity cost: the benefit forgone, or advantage lost, that results from choosing one action over the best alternative course of action Avoidable costs: include any expense that is not incurred if an investment is made but must be incurred if the investment is not made Expected value: the expected outcome multiplied by the probability of its occurrence C-4 Concepts and Definitions (continued) Economic life of a machine: the time period over which it provides the best method for performing its task Obsolescence: occurs when a machine is worn out Depreciation: a method for allocating costs of capital investment, including buildings, machinery, and so on May not reflect an assets true value because obsolescence may at any time cause a large difference between the true value and book value C-5 Depreciation Methods Straight-line method: an assets value is reduced in uniform annual amounts over its estimated useful life Sum-of-the-years-digits (SYD) method: reduces the book value of an asset rapidly in the early years and slower later in its life Declining-balance method: an assets value is decreased by reducing its value by a constant percentage each year C-6 Depreciation Methods (continued) Double-declining-balance method: uses a percentage twice the straight line for the lift span but applies this rate to the underappreciated original cost Depreciation-by-use method: the life of a machine is estimated in number of operations and then actual usage is used to calculate depreciation C-7 Activity-Based Costing To know the cost, some method of allocating overhead must be applied. Traditional approach is to use labor hours. Can lead to questionable investment decisions Requires effort to track labor hours Activity-based costing alleviates these problems. C-8 Activity-Based Costing (continued) Causal factors are identified and used as a the means of allocating overhead. Cost drivers Might include machine hours, beds occupied, computer time, and so on Activity-based costing is a two-stage allocation processes. 1.Assigning overhead costs to cost activity pools 2.Costs are assigned from these pools based on the number of pool -related activity required in their completion C-9 Traditional and Activity-Based Costing C-10 Overhead Allocations by an Activity Approach C-11 The Effects of Taxes Tax rates occasionally change. For investment proposals, tax considerations often prove to be the deciding factor. Depreciation expenses directly affect taxable income and, therefore, it affects profits. The ability to write-off depreciation in early years provides an added source of funds for investments. C-12 Choosing Among Investment Proposals The capital investment decision has become highly rationalized. Made with a higher degree of confidence Variables are relatively well known. Variables can be quantified with fair accuracy. C-13 Investment Decision Categories 1.Purchase of new equipment and/or facilities 2.Replacement of existing equipment or facilities 3.Make-or-buy decisions 4.Lease-or-buy decisions 5.Temporary shutdowns or plant-abandonment decisions 6.Addition or elimination of a product or product line C-14 Determining the Cost of Capital The cost of capital is calculated from a weighted average of debt and equity security costs. The average will vary depending on the financing strategy employed. Short-term debt Long-term debt Equity securities C-15 Interest Rate Effects Compound value of a single amount Compound value of an annuity Present value of a future single payment Present value of an annuity Discounted cash flow C-16 Methods of Ranking Investments Net present value Payback period Internal rate of return Ranking investments with uneven lives C-17 Example C.1: An Expansion Decision C-18 Example C.1: Yearly Income Before Depreciation and Taxes Acquisition cost is $500,000. Installation cost is $20,000. Lease expense is a sunk cost. Annual production expenses are $600,000. Annu