bma9e12 investment, strategy, and economic rents principles of corporate finance 9th edition 公司金融教学课件

,Chapter 12,PrinciplesofCorporateFinanceNinth Edition,Investment, Strategy, and Economic Rents,Slides byMatthew Will,Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved,McGraw Hill/Irwin,Topics Covered,Look First To Market ValuesEconomic Rents and Competitive AdvantageExample - Marvin Enterprises,Market Values,Smart investment decisions make MORE money than smart financing decisions Smart investments are worth more than they cost: they have positive NPVsFirms calculate project NPVs by discounting forecast cash flows, but . . .,Market Values,Projects may appear to have positive NPVs because of forecasting errorse.g. some acquisitions result from errors in a DCF analysisPositive NPVs stem from a comparative advantageStrategic decision-making identifies this comparative advantage; it does not identify growth areas,Market Values,Dont make investment decisions on the basis of errors in your DCF analysis.Start with the market price of the asset and ask whether it is worth more to you than to others.,Market Values,Dont assume that other firms will watch passively.Ask -How long a lead do I have over my rivals? What will happen to prices when that lead disappearsIn the meantime how will rivals react to my move? Will they cut prices or imitate my product?,Department Store Rents,assumes price of property appreciates by 3% a yearRental yield = 10 - 3 = 7%,Department Store Rents,EXAMPLE: KING SOLOMONS MINE Investment= $200 million Life= 10 years Production= .1 million oz. a year Production cost= $200 per oz. Current gold price= $400 per oz. Discount rate= 10%,Using Market Values,EXAMPLE: KING SOLOMONS MINE - continuedIf the gold price is forecasted to rise by 5% p.a.:But if gold is fairly priced, you do not need to forecast future gold prices:NPV = -investment + PV revenues - PV costs,Using Market Values,Do Projects Have Positive NPVs?,Rents = profits that more than cover the cost of capitalNPV = PV (rents)Rents come only when you have a better product, lower costs or some other competitive edgeSooner or later competition is likely to eliminate rents,Competitive Advantage,Proposal to manufacture specialty chemicalsRaw materials were commodity chemicals imported from EuropeFinished product was exported to EuropeHigh early profits, but . . . . . what happens when competitors enter?,Polyzone Production NPV,U.S. Company (figures in millions),Polyzone Production NPV,European Company (figures in millions),Polyzone Production NPV,U.S. Company w/ European Competition (figures in millions),Marvin Enterprises,Marvin Enterprises,Demand = 80 (10 - Price) Price = 10 x quantity/80,Demand for Garbage Blasters,Marvin Enterprises,Value of Garbage Blaster Investment,Marvin Enterprises,VALUE OF CURRENT BUSINESS:VALUEAt price of $7 PV = 24 x 3.5/.20 420WINDFALL LOSS:Since price falls to $5 after 5 years,Loss = - 24 x (2 / .20) x (1 / 1.20)5 - 96 VALUE OF NEW INVESTMENT:Rent gained on new investment = 100 x 1 for 5 years = 299Rent lost on old investment = - 24 x 1 for 5 years = - 72 227 227TOTAL VALUE: 551CURRENT MARKET PRICE: 460,Marvin Enterprises,100 200 280,NPV new plant,Change in PV existing plant,Total NPV of investment,400,600,200,-200,NPV $m.,Addition to capacity millions,Alternative