第六章 投资决策的其他方法.ppt

ChapterOutline 6 1WhyUseNetPresentValue 6 2ThePaybackPeriodRule6 3TheDiscountedPaybackPeriodRule6 4TheAverageAccountingReturn6 5TheInternalRateofReturn6 6ProblemswiththeIRRApproach6 7TheProfitabilityIndex6 8ThePracticeofCapitalBudgeting6 9SummaryandConclusions 6 1WhyUseNetPresentValue AcceptingpositiveNPVprojectsbenefitsshareholders NPVusescashflowsNPVusesallthecashflowsoftheprojectNPVdiscountsthecashflowsproperly TheNetPresentValue NPV Rule NetPresentValue NPV TotalPVoffutureCF s InitialInvestmentEstimatingNPV 1 Estimatefuturecashflows howmuch andwhen 2 Estimatediscountrate3 EstimateinitialcostsMinimumAcceptanceCriteria AcceptifNPV 0RankingCriteria ChoosethehighestNPV GoodAttributesoftheNPVRule 1 Usescashflows2 UsesALLcashflowsoftheproject3 DiscountsALLcashflowsproperlyReinvestmentassumption theNPVruleassumesthatallcashflowscanbereinvestedatthediscountrate 6 2ThePaybackPeriodRule Howlongdoesittaketheprojectto payback itsinitialinvestment PaybackPeriod numberofyearstorecoverinitialcostsMinimumAcceptanceCriteria setbymanagementRankingCriteria setbymanagement ThePaybackPeriodRule continued Disadvantages IgnoresthetimevalueofmoneyIgnorescashflowsafterthepaybackperiodBiasedagainstlong termprojectsRequiresanarbitraryacceptancecriteriaAprojectacceptedbasedonthepaybackcriteriamaynothaveapositiveNPVAdvantages EasytounderstandBiasedtowardliquidity 6 3TheDiscountedPaybackPeriodRule Howlongdoesittaketheprojectto payback itsinitialinvestmenttakingthetimevalueofmoneyintoaccount Bythetimeyouhavediscountedthecashflows youmightaswellcalculatetheNPV 6 4TheAverageAccountingReturnRule Anotherattractivebutfatallyflawedapproach RankingCriteriaandMinimumAcceptanceCriteriasetbymanagementDisadvantages IgnoresthetimevalueofmoneyUsesanarbitrarybenchmarkcutoffrateBasedonbookvalues notcashflowsandmarketvaluesAdvantages TheaccountinginformationisusuallyavailableEasytocalculate 6 5TheInternalRateofReturn IRR Rule IRR thediscountthatsetsNPVtozeroMinimumAcceptanceCriteria AcceptiftheIRRexceedstherequiredreturn RankingCriteria SelectalternativewiththehighestIRRReinvestmentassumption AllfuturecashflowsassumedreinvestedattheIRR Disadvantages Doesnotdistinguishbetweeninvestingandborrowing IRRmaynotexistortheremaybemultipleIRRProblemswithmutuallyexclusiveinvestmentsAdvantages Easytounderstandandcommunicate TheInternalRateofReturn Example Considerthefollowingproject Theinternalrateofreturnforthisprojectis19 44 TheNPVPayoffProfileforThisExample IfwegraphNPVversusdiscountrate wecanseetheIRRasthex axisintercept 6 6ProblemswiththeIRRApproach MultipleIRRs AreWeBorrowingorLending TheScaleProblem TheTimingProblem MultipleIRRs TherearetwoIRRsforthisproject Whichoneshouldweuse TheScaleProblem Wouldyourathermake100 or50 onyourinvestments Whatifthe100 returnisona 1investmentwhilethe50 returnisona 1 000investment TheTimingProblem Thepreferredprojectinthiscasedependsonthediscountrate nottheIRR TheTimingProblem CalculatingtheCrossoverRate ComputetheIRRforeitherproject A B or B A MutuallyExclusivevs IndependentProject MutuallyExclusiveProjects onlyONEofseveralpotentialprojectscanbechosen e g acquiringanaccountingsystem RANKallalternativesandselectthebestone IndependentProjects acceptingorrejectingoneprojectdoesnotaffectthedecisionoftheotherprojects MustexceedaMINIMUMacceptancecriteria 6 7TheProfitabilityIndex PI Rule MinimumAcceptanceCriteria AcceptifPI 1RankingCriteria SelectalternativewithhighestPIDisadvantages ProblemswithmutuallyexclusiveinvestmentsAdvantages MaybeusefulwhenavailableinvestmentfundsarelimitedEasytounderstandandcommunicateCorrectdecisionwhenevaluatingindependentprojects 6 8ThePracticeofCapitalBudgeting Variesbyindustry Somefirmsusepayback othersuseaccountingrateofreturn ThemostfrequentlyusedtechniqueforlargecorporationsisIRRorNPV ExampleofInvestmentRules ComputetheIRR NPV PI andpaybackperiodforthefollowingtwoprojects Assumetherequiredreturnis10 YearProjectAProjectB0 200 1501 200 502 800 1003 800 150 ExampleofInvestmentRules ProjectAProjectBCF0 200 00 150 00PV0ofCF1 3 241 92 240 80NPV 41 92 90 80IRR 0 100 36 19 PI 1 20961 6053 ExampleofInvestmentRules PaybackPeriod ProjectAProjectBTimeCFCum CFCFCum CF0 200 200 150 1501200050 100280080010003 8000150150PaybackperiodforprojectB 2years PaybackperiodforprojectA 1or3years RelationshipBetweenNPVandIRR DiscountrateNPVforANPVforB 10 87 52234 770 0 00150 0020 59 2647 9240 59 48 8 6060 42 19 43 0780 20 85 65 64100 0 00 81 25120 18 93 92 52 ProjectA ProjectB 200 100 0 100 200 300 400 15 0 15 30 45 70 100 130 160 190 Discountrates NPV IRR1 A IRR B NPVProfiles IRR2 A 6 9Summ