公司理财英文版第九章课件.ppt

Chapter9NetPresentValueandOtherInvestmentCriteria PPT学习交流 KeyConceptsandSkills BeabletocomputepaybackanddiscountedpaybackandunderstandtheirshortcomingsUnderstandaccountingratesofreturnandtheirshortcomingsBeabletocomputeinternalratesofreturn standardandmodified andunderstandtheirstrengthsandweaknessesBeabletocomputethenetpresentvalueandunderstandwhyitisthebestdecisioncriterionBeabletocomputetheprofitabilityindexandunderstanditsrelationtonetpresentvalue 9 2 PPT学习交流 ChapterOutline NetPresentValueThePaybackRuleTheDiscountedPaybackTheAverageAccountingReturnTheInternalRateofReturnTheProfitabilityIndexThePracticeofCapitalBudgeting 9 3 PPT学习交流 GoodDecisionCriteria Weneedtoaskourselvesthefollowingquestionswhenevaluatingcapitalbudgetingdecisionrules Doesthedecisionruleadjustforthetimevalueofmoney Doesthedecisionruleadjustforrisk Doesthedecisionruleprovideinformationonwhetherwearecreatingvalueforthefirm 9 4 PPT学习交流 NetPresentValue ThedifferencebetweenthemarketvalueofaprojectanditscostHowmuchvalueiscreatedfromundertakinganinvestment Thefirststepistoestimatetheexpectedfuturecashflows Thesecondstepistoestimatetherequiredreturnforprojectsofthisrisklevel Thethirdstepistofindthepresentvalueofthecashflowsandsubtracttheinitialinvestment 9 5 PPT学习交流 ProjectExampleInformation Youarereviewinganewprojectandhaveestimatedthefollowingcashflows Year0 CF 165 000Year1 CF 63 120 NI 13 620Year2 CF 70 800 NI 3 300Year3 CF 91 080 NI 29 100AverageBookValue 72 000Yourrequiredreturnforassetsofthisrisklevelis12 9 6 PPT学习交流 NPV DecisionRule IftheNPVispositive accepttheprojectApositiveNPVmeansthattheprojectisexpectedtoaddvaluetothefirmandwillthereforeincreasethewealthoftheowners Sinceourgoalistoincreaseownerwealth NPVisadirectmeasureofhowwellthisprojectwillmeetourgoal 9 7 PPT学习交流 ComputingNPVfortheProject Usingtheformulas NPV 165 000 63 120 1 12 70 800 1 12 2 91 080 1 12 3 12 627 41Usingthecalculator CF0 165 000 C01 63 120 F01 1 C02 70 800 F02 1 C03 91 080 F03 1 NPV I 12 CPTNPV 12 627 41Doweacceptorrejecttheproject 9 8 PPT学习交流 DecisionCriteriaTest NPV DoestheNPVruleaccountforthetimevalueofmoney DoestheNPVruleaccountfortheriskofthecashflows DoestheNPVruleprovideanindicationabouttheincreaseinvalue ShouldweconsidertheNPVruleforourprimarydecisionrule 9 9 PPT学习交流 CalculatingNPVswithaSpreadsheet SpreadsheetsareanexcellentwaytocomputeNPVs especiallywhenyouhavetocomputethecashflowsaswell UsingtheNPVfunctionThefirstcomponentistherequiredreturnenteredasadecimalThesecondcomponentistherangeofcashflowsbeginningwithyear1SubtracttheinitialinvestmentaftercomputingtheNPV 9 10 PPT学习交流 PaybackPeriod Howlongdoesittaketogettheinitialcostbackinanominalsense ComputationEstimatethecashflowsSubtractthefuturecashflowsfromtheinitialcostuntiltheinitialinvestmenthasbeenrecoveredDecisionRule Acceptifthepaybackperiodislessthansomepresetlimit 9 11 PPT学习交流 ComputingPaybackfortheProject Assumewewillaccepttheprojectifitpaysbackwithintwoyears Year1 165 000 63 120 101 880stilltorecoverYear2 101 880 70 800 31 080stilltorecoverYear3 31 080 91 080 60 000projectpaysbackinyear3Doweacceptorrejecttheproject 9 12 PPT学习交流 DecisionCriteriaTest Payback Doesthepaybackruleaccountforthetimevalueofmoney Doesthepaybackruleaccountfortheriskofthecashflows Doesthepaybackruleprovideanindicationabouttheincreaseinvalue Shouldweconsiderthepaybackruleforourprimarydecisionrule 9 13 PPT学习交流 AdvantagesandDisadvantagesofPayback AdvantagesEasytounderstandAdjustsforuncertaintyoflatercashflowsBiasedtowardliquidity DisadvantagesIgnoresthetimevalueofmoneyRequiresanarbitrarycutoffpointIgnorescashflowsbeyondthecutoffdateBiasedagainstlong termprojects suchasresearchanddevelopment andnewprojects 9 14 PPT学习交流 DiscountedPaybackPeriod ComputethepresentvalueofeachcashflowandthendeterminehowlongittakestopaybackonadiscountedbasisComparetoaspecifiedrequiredperiodDecisionRule Accepttheprojectifitpaysbackonadiscountedbasiswithinthespecifiedtime 9 15 PPT学习交流 ComputingDiscountedPaybackfortheProject Assumewewillaccepttheprojectifitpaysbackonadiscountedbasisin2years ComputethePVforeachcashflowanddeterminethepaybackperiodusingdiscountedcashflowsYear1 165 000 63 120 1 121 108 643Year2 108 643 70 800 1 122 52 202Year3 52 202 91 080 1 123 12 627projectpaysbackinyear3Doweacceptorrejecttheproject 9 16 PPT学习交流 DecisionCriteriaTest DiscountedPayback Doesthediscountedpaybackruleaccountforthetimevalueofmoney Doesthediscountedpaybackruleaccountfortheriskofthecashflows Doesthediscountedpaybackruleprovideanindicationabouttheincreaseinvalue Shouldweconsiderthediscountedpaybackruleforourprimarydecisionrule 9 17 PPT学习交流 AdvantagesandDisadvantagesofDiscountedPayback AdvantagesIncludestimevalueofmoneyEasytounderstandDoesnotacceptnegativeestimatedNPVinvestmentswhenallfuturecashflowsarepositiveBiasedtowardsliquidity DisadvantagesMayrejectpositiveNPVinvestmentsRequiresanarbitrarycutoffpointIgnorescashflowsbeyondthecutoffpointBiasedagainstlong termprojects suchasR Dandnewproducts 9 18 PPT学习交流 AverageAccountingReturn TherearemanydifferentdefinitionsforaverageaccountingreturnTheoneusedinthebookis Averagenetincome averagebookvalueNotethattheaveragebookvaluedependsonhowtheassetisdepreciated NeedtohaveatargetcutoffrateDecisionRule AccepttheprojectiftheAARisgreaterthanapresetrate 9 19 PPT学习交流 ComputingAARfortheProject Assumewerequireanaverageaccountingreturnof25 AverageNetIncome 13 620 3 300 29 100 3 15 340AAR 15 340 72 000 213 21 3 Doweacceptorrejecttheproject 9 20 PPT学习交流 DecisionCriteriaTest AAR DoestheAARruleaccountforthetimevalueofmoney DoestheAARruleaccountfortheriskofthecashflows DoestheAARruleprovideanindicationabouttheincreaseinvalue ShouldweconsidertheAARruleforourprimarydecisionrule 9 21 PPT学习交流 AdvantagesandDisadvantagesofAAR AdvantagesEasytocalculateNeededinformationwillusuallybeavailable DisadvantagesNotatruerateofreturn timevalueofmoneyisignoredUsesanarbitrarybenchmarkcutoffrateBasedonaccountingnetincomeandbookvalues notcashflowsandmarketvalues 9 22 PPT学习交流 InternalRateofReturn ThisisthemostimportantalternativetoNPVItisoftenusedinpracticeandisintuitivelyappealingItisbasedentirelyontheestimatedcashflowsandisindependentofinterestratesfoundelsewhere 9 23 PPT学习交流 IRR DefinitionandDecisionRule Definition IRRisthereturnthatmakestheNPV 0DecisionRule AccepttheprojectiftheIRRisgreaterthantherequiredreturn 9 24 PPT学习交流 ComputingIRRfortheProject Ifyoudonothaveafinancialcalculator thenthisbecomesatrialanderrorprocessCalculatorEnterthecashflowsasyoudidwithNPVPressIRRandthenCPTIRR 16 13 12 requiredreturnDoweacceptorrejecttheproject 9 25 PPT学习交流 NPVProfilefortheProject IRR 16 13 9 26 PPT学习交流 DecisionCriteriaTest IRR DoestheIRRruleaccountforthetimevalueofmoney DoestheIRRruleaccountfortheriskofthecashflows DoestheIRRruleprovideanindicationabouttheincreaseinvalue ShouldweconsidertheIRRruleforourprimarydecisioncriteria 9 27 PPT学习交流 AdvantagesofIRR KnowingareturnisintuitivelyappealingItisasimplewaytocommunicatethevalueofaprojecttosomeonewhodoesn tknowalltheestimationdetailsIftheIRRishighenough youmaynotneedtoestimatearequiredreturn whichisoftenadifficulttask 9 28 PPT学习交流 CalculatingIRRsWithASpreadsheet YoustartwiththecashflowsthesameasyoudidfortheNPVYouusetheIRRfunctionYoufirstenteryourrangeofcashflows beginningwiththeinitialcashflowYoucanenteraguess butitisnotnecessaryThedefaultformatisawholepercent youwillnormallywanttoincreasethedecimalplacestoatleasttwo 9 29 PPT学习交流 SummaryofDecisionsfortheProject 9 30 PPT学习交流 NPVvs IRR NPVandIRRwillgenerallygiveusthesamedecisionExceptionsNonconventionalcashflows cashflowsignschangemorethanonceMutuallyexclusiveprojectsInitialinvestmentsaresubstantiallydifferent issueofscale Timingofcashflowsissubstantiallydifferent 9 31 PPT学习交流 IRRandNonconventionalCashFlows Whenthecashflowschangesignmorethanonce thereismorethanoneIRRWhenyousolveforIRRyouaresolvingfortherootofanequation andwhenyoucrossthex axismorethanonce therewillbemorethanonereturnthatsolvestheequationIfyouhavemorethanoneIRR whichonedoyouusetomakeyourdecision 9 32 PPT学习交流 AnotherExample NonconventionalCashFlows Supposeaninvestmentwillcost 90 000initiallyandwillgeneratethefollowingcashflows Year1 132 000Year2 100 000Year3 150 000Therequiredreturnis15 Shouldweacceptorrejecttheproject 9 33 PPT学习交流 NPVProfile IRR 10 11 and42 66 9 34 PPT学习交流 SummaryofDecisionRules TheNPVispositiveatarequiredreturnof15 soyoushouldAcceptIfyouusethefinancialcalculator youwouldgetanIRRof10 11 whichwouldtellyoutoRejectYouneedtorecognizethattherearenon conventionalcashflowsandlookattheNPVprofile 9 35 PPT学习交流 IRRandMutuallyExclusiveProjects MutuallyexclusiveprojectsIfyouchooseone youcan tchoosetheotherExample YoucanchoosetoattendgraduateschoolateitherHarvardorStanford butnotbothIntuitively youwouldusethefollowingdecisionrules NPV choosetheprojectwiththehigherNPVIRR choosetheprojectwiththehigherIRR 9 36 PPT学习交流 ExampleWithMutuallyExclusiveProjects Therequiredreturnforbothprojectsis10 Whichprojectshouldyouacceptandwhy 9 37 PPT学习交流 NPVProfiles IRRforA 19 43 IRRforB 22 17 CrossoverPoint 11 8 9 38 PPT学习交流 ConflictsBetweenNPVandIRR NPVdirectlymeasurestheincreaseinvaluetothefirmWheneverthereisaconflictbetweenNPVandanotherdecisionrule youshouldalwaysuseNPVIRRisunreliableinthefollowingsituationsNonconventionalcashflowsMutuallyexclusiveprojects 9 39 PPT学习交流 ModifiedIRR Calculatethenetpresentvalueofallcashoutflowsusingtheborrowingrate Calculatethenetfuturevalueofallcashinflowsusingtheinvestingrate Findtherateofreturnthatequatesthesevalues Benefits singleanswerandspecificratesforborrowingandreinvestment 9 40 PPT学习交流 ProfitabilityIndex Measuresthebenefitperunitcost basedonthetimevalueofmoneyAprofitabilityindexof1 1impliesthatforevery 1ofinvestment wecreateanadditional 0 10invalueThismeasurecanbeveryusefulinsituationsinwhichwehavelimitedcapital 9 41 PPT学习交流 AdvantagesandDisadvantagesofProfitabilityIndex AdvantagesCloselyrelatedtoNPV generallyleadingtoidenticaldecisionsEasytounderstandandcommunicateMaybeusefulwhenavailableinvestmentfundsarelimited DisadvantagesMayleadtoincorrectdecisionsincomparisonsofmutuallyexclusiveinvestments 9 42 PPT学习交流 CapitalBudgetingInPractice WeshouldconsiderseveralinvestmentcriteriawhenmakingdecisionsNPVandIRRarethemostcommonlyusedprimaryinvestmentcriteriaPaybackisacommonlyusedsecondaryinvestmentcriteria 9 43 PPT学习交流 Summary DCFCriteria NetpresentvalueDifferencebetweenmarketvalueandcostTaketheprojectiftheNPVispositiveHasnoseriousproblemsPreferreddecisioncriterionInternalrateofreturnDiscountratethatmakesNPV 0TaketheprojectiftheIRRisgreaterthantherequiredreturnSamedecisionasNPVwithconventionalcashflowsIRRisunreliablewithnonconventionalcashflowsormutuallyexclusiveprojectsProfitabilityIndexBenefit costratioTakeinvestmentifPI 1CannotbeusedtorankmutuallyexclusiveprojectsMaybeusedtorankprojectsinthepresenceofcapitalrationing 9 44 PPT学习交流 Summary PaybackCriteria PaybackperiodLengthoftimeun