Ross7eCh07Net_Present_Value_and_Capital_Budgeting(公司理财_罗斯_第七版)

7-0,CHAPTER,7,NetPresentValueandCapitalBudgeting,7-1,ChapterOutline,7.1IncrementalCashFlows7.2TheBaldwinCompany:AnExample7.3TheBoeing777:AReal-WorldExample7.4InflationandCapitalBudgeting7.5InvestmentsofUnequalLives:TheEquivalentAnnualCostMethod7.6SummaryandConclusions,7-2,7.1IncrementalCashFlows,Cashflowsmatternotaccountingearnings.Sunkcostsdontmatter.Incrementalcashflowsmatter.Opportunitycostsmatter.Sideeffectslikesynergyanderosionmatter.Taxesmatter:wewantincrementalafter-taxcashflows.Inflationmatters.,7-3,CashFlowsNotAccountingEarnings,Considerdepreciationexpense.Youneverwriteacheckmadeoutto“depreciation”.Muchoftheworkinevaluatingaprojectliesintakingaccountingnumbersandgeneratingcashflows.,7-4,IncrementalCashFlows,SunkcostsOpportunitycostsdomatter.JustbecauseaprojecthasapositiveNPVthatdoesnotmeanthatitshouldalsohaveautomaticacceptance.SpecificallyifanotherprojectwithahigherNPVwouldhavetobepassedupweshouldnotproceed.,7-5,IncrementalCashFlows,Sideeffectsmatter.Erosion(Ifournewproductcausesexistingcustomerstodemandlessofcurrentproducts,weneedtorecognizethat.)Synergy,7-6,EstimatingCashFlows,CashFlowsfromOperationsRecallthat:OperatingCashFlow=EBITTaxes+DepreciationNetCapitalSpendingDontforgetsalvagevalue(aftertax,ofcourse).,7-7,InterestExpense,Laterchapterswilldealwiththeimpactthattheamountofdebtthatafirmhasinitscapitalstructurehasonfirmvalue.Fornow,itsenoughtoassumethatthefirmslevelofdebt(henceinterestexpense)isindependentoftheprojectathand.,7-8,7.2TheBaldwinCompany:AnExample,Costsoftestmarketing(alreadyspent):$250,000.Currentmarketvalueofproposedfactorysite(whichweown):$150,000.Costofbowlingballmachine:$100,000(depreciatedaccordingtoACRS5-yearlife).Increaseinnetworkingcapital:$10,000.Production(inunits)byyearduring5-yearlifeofthemachine:5,000,8,000,12,000,10,000,6,000.Priceduringfirstyearis$20;priceincreases2%peryearthereafter.Productioncostsduringfirstyearare$10perunitandincrease10%peryearthereafter.Annualinflationrate:5%WorkingCapital:initially$10,000changeswithsales.,7-9,TheWorksheetforCashFlowsoftheBaldwinCompany,Year0Year1Year2Year3Year4Year5Investments:(1)Bowlingballmachine100.0021.76*(2)Accumulated20.0052.0071.2082.7294.24depreciation(3)Adjustedbasisof80.0048.0028.8017.285.76machineafterdepreciation(endofyear)(4)Opportunitycost150.00150.00(warehouse)(5)Networkingcapital10.0010.0016.3224.9721.220(endofyear)(6)Changeinnet10.006.328.653.7521.22workingcapital(7)Totalcashflowof260.006.328.653.75192.98investment(1)+(4)+(6),*Weassumethattheendingmarketvalueofthecapitalinvestmentatyear5is$30,000.Capitalgainisthedifferencebetweenendingmarketvalueandadjustedbasisofthemachine.Theadjustedbasisistheoriginalpurchasepriceofthemachinelessdepreciation.Thecapitalgainis$24,240(=$30,000$5,760).WewillassumetheincrementalcorporatetaxforBaldwinonthisprojectis34percent.Capitalgainsarenowtaxedattheordinaryincomerate,sothecapitalgainstaxdueis$8,2400.34($30,000$5,760).Theafter-taxsalvagevalueis$30,0000.34($30,000$5,760)=21,760.,($thousands)(Allcashflowsoccurattheendoftheyear.),7-10,TheWorksheetforCashFlowsoftheBaldwinCompany,($thousands)(Allcashflowsoccurattheendoftheyear.),Year0Year1Year2Year3Year4Year5Investments:(1)Bowlingballmachine100.0021.76*(2)Accumulated20.0052.0071.2082.7294.24depreciation(3)Adjustedbasisof80.0048.0028.8017.285.76machineafterdepreciation(endofyear)(4)Opportunitycost150.00150.00(warehouse)(5)Networkingcapital10.0010.0016.3224.9721.220(endofyear)(6)Changeinnet10.006.328.653.7521.22workingcapital(7)Totalcashflowof260.006.328.653.75192.98investment(1)+(4)+(6),150,7-11,TheWorksheetforCashFlowsoftheBaldwinCompany(continued),Year0Year1Year2Year3Year4Year5Income:(8)SalesRevenues100.00163.00249.72212.20129.90,($thousands)(Allcashflowsoccurattheendoftheyear.),Recallthatproduction(inunits)byyearduring5-yearlifeofthemachineisgivenby:(5,000,8,000,12,000,10,000,6,000).Priceduringfirstyearis$20andincreases2%peryearthereafter.Salesrevenueinyear3=12,000$20(1.02)2=12,000$20.81=$249,720.,7-12,TheWorksheetforCashFlowsoftheBaldwinCompany(continued),Year0Year1Year2Year3Year4Year5Income:(8)SalesRevenues100.00163.00249.72212.20129.90(9)Operatingcosts50.0088.00145.20133.1087.84,($thousands)(Allcashflowsoccurattheendoftheyear.),Again,production(inunits)byyearduring5-yearlifeofthemachineisgivenby:(5,000,8,000,12,000,10,000,6,000).Productioncostsduringfirstyear(perunit)are$10and(increase10%peryearthereafter).Productioncostsinyear2=8,000$10(1.10)1=$88,000,7-13,TheWorksheetforCashFlowsoftheBaldwinCompany(continued),Year0Year1Year2Year3Year4Year5Income:(8)SalesRevenues100.00163.00249.72212.20129.90(9)Operatingcosts50.0088.00145.20133.1087.84(10)Depreciation20.0032.0019.2011.5211.52,($thousands)(Allcashflowsoccurattheendoftheyear.),DepreciationiscalculatedusingtheAcceleratedCostRecoverySystem(shownatright)Ourcostbasisis$100,000Depreciationchargeinyear4=$100,000(.1152)=$11,520.,7-14,TheWorksheetforCashFlowsoftheBaldwinCompany(continued),Year0Year1Year2Year3Year4Year5Income:(8)SalesRevenues100.00163.00249.72212.20129.90(9)Operatingcosts50.0088.00145.20133.1087.84(10)Depreciation20.0032.0019.2011.5211.52(11)Incomebeforetaxes30.0043.2085.3267.5830.54(8)(9)-(10)(12)Taxat34percent10.2014.6929.0122.9810.38(13)NetIncome19.8028.5156.3144.6020.16,($thousands)(Allcashflowsoccurattheendoftheyear.),7-15,IncrementalAfterTaxCashFlowsoftheBaldwinCompany,7-16,NPVBaldwinCompany,1,39.80,51,588.05,260,CF1,F1,CF0,I,NPV,10,1,54.19,CF2,F2,1,66.86,CF3,F3,1,59.87,CF4,F4,1,224.66,CF5,F5,7-17,7.3InflationandCapitalBudgeting,Inflationisanimportantfactofeconomiclifeandmustbeconsideredincapitalbudgeting.Considertherelationshipbetweeninterestratesandinflation,oftenreferredtoastheFisherrelationship:(1+NominalRate)=(1+RealRate)(1+InflationRate)Forlowratesofinflation,thisisoftenapproximatedasRealRateNominalRateInflationRateWhilethenominalrateintheU.S.hasfluctuatedwithinflation,mostofthetimetherealratehasexhibitedfarlessvariancethanthenominalrate.Whenaccountingforinflationincapitalbudgeting,onemustcomparerealcashflowsdiscountedatrealratesornominalcashflowsdiscountedatnominalrates.,7-18,ExampleofCapitalBudgetingunderInflation,SonyInternationalhasaninvestmentopportunitytoproduceanewstereocolorTV.TherequiredinvestmentonJanuary1ofthisyearis$32million.Thefirmwilldepreciatetheinvestmenttozerousingthestraight-linemethod.Thefirmisinthe34%taxbracket.ThepriceoftheproductonJanuary1willbe$400perunit.Thepricewillstayconstantinrealterms.Laborcostswillbe$15perhouronJanuary1.Thewillincreaseat2%peryearinrealterms.Energycostswillbe$5perTV;theywillincrease3%peryearinrealterms.Theinflationrateis5%Revenuesarereceivedandcostsarepaidatyear-end.,7-19,ExampleofCapitalBudgetingunderInflation,Therisklessnominaldiscountrateis4%.Therealdiscountrateforcostsandrevenuesis8%.CalculatetheNPV.,7-20,CF0,ExampleofCapitalBudgetingunderInflation,Thedepreciationtaxshieldisarisk-freenominalcashflow,andisthereforediscountedatthenominalrisklessrate.Costofinvestmenttoday=$32,000,000Projectlife=4yearsAnnualdepreciationexpense:,Depreciationtaxshield=$8,000,000.34=$2,720,000,4,2,720,000,0,CF1,F1,9,873,315,I,NPV,4,7-21,Year1After-taxRealRiskyCashFlows,RiskyRealCashFlowsPrice:$400perunitwithzerorealpriceincreaseLabor:$15perhourwith2%realwageincreaseEnergy:$5perunitwith3%realenergycostincreaseYear1After-taxRealRiskyCashFlows:After-taxrevenues=$400100,000(1.34)=$26,400,000After-taxlaborcosts=$152,000,0001.02(1.34)=$20,196,000After-taxenergycosts=$52,00,0001.03(1.34)=$679,800After-taxnetoperatingCF=$26,400,000$20,196,000$679,800=$5,524,200,7-22,Year2After-taxRealRiskyCashFlows,RiskyRealCashFlowsPrice:$400perunitwithzerorealpriceincreaseLabor:$15perhourwith2%realwageincreaseEnergy:$5perunitwith3%realenergycostincreaseYear1After-taxRealRiskyCashFlows:After-taxrevenues=$400100,000(1.34)=$26,400,000After-taxlaborcosts=$152,000,000(1.02)2(1.34)=$20,599,920After-taxenergycosts=$52,00,000(1.03)2(1.34)=$700,194After-taxnetoperatingCF=$26,400,000$20,599,920$700,194=$31,499,886,7-23,Year3After-taxRealRiskyCashFlows,RiskyRealCashFlowsPrice:$400perunitwithzerorealpriceincreaseLabor:$15perhourwith2%realwageincreaseEnergy:$5perunitwith3%realenergycostincreaseYear1After-taxRealRiskyCashFlows:After-taxrevenues=$400100,000(1.34)=$26,400,000After-taxlaborcosts=$152,000,000(1.02)3(1.34)=$21,011.92After-taxenergycosts=$52,00,000(1.03)3(1.34)=$721,199.82After-taxnetoperatingCF=$26,400,000$21,011.92$721,199.82=$31,066,882,7-24,Year4After-taxRealRiskyCashFlows,RiskyRealCashFlowsPrice:$400perunitwithzerorealpriceincreaseLabor:$15perhourwith2%realwageincreaseEnergy:$5perunitwith3%realenergycostincreaseYear1After-taxRealRiskyCashFlows:After-taxrevenues=$400100,000(1.34)=$26,400,000After-taxlaborcosts=$152,000,000(1.02)4(1.34)=$21,432.16After-taxenergycosts=$52,00,000(1.03)4(1.34)=$742,835.82After-taxnetoperatingCF=$26,400,000$21,432.16$742,835.82=$17,425,007,7-25,ExampleofCapitalBudgetingunderInflation,$5,524,200$31,499,886$31,066,882$17,425,007,-$32,000,000,01234,1,5,524,000,32m,CF1,F1,CF0,1,31,499,886,CF2,F2,1,31,066,882,CF3,F3,1,17,425,007,CF4,F4,69,590,868,I,NPV,8,7-26,ExampleofCapitalBudgetingunderInflation,TheprojectNPVcannowbecomputedasthesumofthePVofthecost,thePVoftheriskycashflowsdiscountedattheriskyrateandthePVoftherisk-freecashflowsdiscountedattherisk-freediscountrate.NPV=$32,000,000+$69,590,868+$9,873,315=$47,464,183,7-27,7.3TheBoeing777:AReal-WorldExample,Inlate1990,theBoeingCompanyannounceditsintentiontobuildtheBoeing777,acommercialairplanethatcouldcarryupto390passengersandfly7,600miles.Analystsexpectedtheup-frontinvestmentandRheneedsanautoclavetosterilizehisinstruments.Hehasanoldonethatisinuse,butthemaintenancecostsarerisingandsoisconsideringreplacingthisindispensablepieceofequipment.NewAutoclaveCost=$3,000today,Maintenancecost=$20peryearResalevalueafter6years=$1,200NPVofnewautoclave(atr=10%)is$2,409.74,EACofnewautoclave