公司理财Chap7ppt课件.ppt

Chapter7NetPresentValueandOtherInvestmentRules KeyConceptsandSkills BeabletocomputepaybackanddiscountedpaybackandunderstandtheirshortcomingsUnderstandaccountingratesofreturnandtheirshortcomingsBeabletocomputetheinternalrateofreturnandprofitabilityindex understandingthestrengthsandweaknessesofbothapproachesBeabletocomputethenetpresentvalueandunderstandwhyitisthebestdecisioncriterion ChapterOutline 7 1WhyUseNetPresentValue 7 2ThePaybackPeriodMethod7 3TheDiscountedPaybackPeriodMethod7 4TheAverageAccountingReturnMethod7 5TheInternalRateofReturn7 6TheProfitabilityIndex7 7ThePracticeofCapitalBudgeting 7 1WhyUseNetPresentValue AcceptingpositiveNPVprojectsbenefitsshareholders NPVusescashflowsNPVusesallthecashflowsoftheprojectNPVdiscountsthecashflowsproperlyReinvestmentassumption theNPVruleassumesthatallcashflowscanbereinvestedatthediscountrate TheNetPresentValue NPV Rule NetPresentValue NPV TotalPVoffutureCFs InitialInvestmentEstimatingNPV 1 Estimatefuturecashflows howmuch andwhen 2 Estimatediscountrate3 EstimateinitialcostsMinimumAcceptanceCriteria AcceptifNPV 0RankingCriteria ChoosethehighestNPV Considerthefollowingthreeprojectsavailabletoafirm Theappropriatediscountratefortheprojectsis10 PleasecalculatetheNPVforeachproject Example 7 2ThePaybackPeriodMethod Howlongdoesittaketheprojectto payback itsinitialinvestment PaybackPeriod numberofyearstorecoverinitialcostsMinimumAcceptanceCriteria SetbymanagementRankingCriteria Setbymanagement Considerthefollowingthreeprojectsavailabletoafirm Pleasecalculatethepaybackperiodforeachproject Example Disadvantages IgnoresthetimevalueofmoneyIgnorescashflowsafterthepaybackperiodBiasedagainstlong termprojectsRequiresarbitraryacceptancecriteriaAprojectacceptedbasedonthepaybackcriteriamaynothaveapositiveNPVAdvantages EasytounderstandBiasedtowardliquidity Example 7 3TheDiscountedPaybackPeriod Howlongdoesittaketheprojectto payback itsinitialinvestment takingthetimevalueofmoneyintoaccount Decisionrule Accepttheprojectifitpaysbackonadiscountedbasiswithinthespecifiedtime PP 1 1 2yeardiscountthecashfollow 100 00045 454 5541 322 3115 026 3 DPP 1 1 100000 45454 55 41322 31 15026 3 2 0 88 2 88year Example discountrate 10 Example discountrate 10 PPA 1 62 PPB 2 3 PPC 2 61 7 4AverageAccountingReturn Anotherattractive butfatallyflawed approachRankingCriteriaandMinimumAcceptanceCriteria Setbymanagement Considerthefollowingthreeprojectsavailabletoafirm Pleasecalculatetheaverageaccountingreturnforeachproject Example Disadvantages IgnoresthetimevalueofmoneyUsesanarbitrarybenchmarkcutoffrateBasedonbookvalues notcashflowsandmarketvaluesAdvantages TheaccountinginformationisusuallyavailableEasytocalculate 7 5TheInternalRateofReturn IRR thediscountratethatsetsNPVtozeroMinimumAcceptanceCriteria AcceptiftheIRRexceedstherequiredreturnRankingCriteria SelectalternativewiththehighestIRRReinvestmentassumption AllfuturecashflowsassumedreinvestedattheIRR Example Considerthefollowingproject Theinternalrateofreturnforthisprojectisabout19 44 IfwegraphNPVversusthediscountrate wecanseetheIRRasthex axisintercept Considerthefollowingthreeprojectsavailabletoafirm Pleasecalculatetheinternalrateofreturnforeachproject Example ProblemswithIRR InvestingorFinancing MultipleIRRsTheScaleProblemTheTimingProblem IndependentandMutuallyExclusiveProjects MutuallyExclusivevs Independent MutuallyExclusiveProjects onlyONEofseveralpotentialprojectscanbechosenRANKallalternatives andselectthebestone IndependentProjects acceptingorrejectingoneprojectdoesnotaffectthedecisionoftheotherprojectsMustexceedaMINIMUMacceptancecriteria TwoGeneralProblemsAffectingBothIndependentandMutuallyExclusiveProjects Problem1 InvestingorFinancing TheNPVofprojectAisnegativelyrelatedtothediscountrate TheNPVofprojectBispositivelyrelatedtothediscountrate Projectswithmorethanonechangeofsigncanhavemultipleratesofreturn Someconclusionsoftheexample InvestingprojectsAcceptifIRRismorethanmarket discount rateRejectifIRRislessthanmarket discount rateFinancingprojectsAcceptifIRRislessthanmarket discount rateRejectifIRRismorethanmarket discount rateMixtureprojectsCanhavemultipleIRRsShoulduseNPVruleorMIRRmethod ModifiedIRR Calculatethenetpresentvalueofallcashoutflowsusingthegivendiscountrate Calculatethenetfuturevalueofallcashinflowsusingthegivendiscountrate Findtherateofreturnthatequatesthesevalues MIRRassumescashinflowsarereinvestedatWACCBenefits singleanswerandspecificratesforborrowingandreinvestment Problem2 MultipleIRRs Example r 10 81 96 330 00 484 00 665 50 1 081 96 PVofallthecostsoftheproject discountedatthecostofcapital FVofalltheprojectsincome reinvestedatthecostofcapital TerminalValue 1 497 50 ProblemsSpecifictoMutuallyExclusiveProjects Wouldyourathermake100 or50 onyourinvestments Whatifthe100 returnisona 1investment whilethe50 returnisona 1 000investment Problem3 TheScaleProblem Problem4 TheTimingProblem Someconclusionsoftheexample Wecanselectthebetterprojectwithoneofthethreedifferentmethods CompareNPVsoftheTwoProjectsCompareIncrementalIRRtoDiscountRateCalculateNPVonIncrementalCashFlows NPVversusIRR NPVandIRRwillgenerallygivethesamedecision Exceptions Non conventionalcashflows cashflowsignschangemorethanonceMutuallyexclusiveprojectsInitialinvestmentsaresubstantiallydifferentTimingofcashflowsissubstantiallydifferent ATest YoumustknowthediscountratetocomputetheNPVofaproject butyoucomputetheIRRwithoutreferringtothediscountrate Hence theIRRruleiseasiertoapplythantheNPVrulebecauseyoudon tusethediscountratewhenapplyingIRR 7 6TheProfitabilityIndex PI MinimumAcceptanceCriteria AcceptifPI 1RankingCriteria SelectalternativewithhighestPI Considerthefollowingthreeprojectsavailabletoafirm Pleasecalculatetheprofitabilityindexforeachproject NPVA 1669 NPVB 1557 NPVc 560 Example Disadvantages ProblemswithmutuallyexclusiveinvestmentsAdvantages MaybeusefulwhenavailableinvestmentfundsarelimitedEasytounderstandandcommunicateCorrectdecisionwhenevaluatingindependentprojects 7 7ThePracticeofCapitalBudgeting Variesbyindustry Somefirmsusepayback othersuseaccountingrateofreturn ThemostfrequentlyusedtechniqueforlargecorporationsisIRRorNPV Summary DiscountedCashFlow NetpresentvalueDifferencebetweenmarketvalueandcostAccepttheprojectiftheNPVispositiveHasnoseriousproblemsPreferreddecisioncriterionInternalrateofreturnDiscountratethatmakesNPV 0TaketheprojectiftheIRRisgreaterthantherequiredreturnSamedecisionasNPVwithconventionalcashflowsIRRisunreliablewithnon conventionalcashflowsormutuallyexclusiveprojectsProfitabilityIndexBenefit costratioTakein