公司理财教学资料cha课件

Chapter10MakingCapitalInvestmentDecisions,2020/5/6,ChapterOutline,ProjectCashFlows:AFirstLookIncrementalCashFlowsProFormaFinancialStatementsandProjectCashFlowsMoreaboutProjectCashFlowAlternativeDefinitionsofOperatingCashFlowSomeSpecialCasesofDiscountedCashFlowAnalysis,10-2,2020/5/6,RelevantCashFlows,Thecashflowsthatshouldbeincludedinacapitalbudgetinganalysisarethosethatwillonlyoccur(ornotoccur)iftheprojectisacceptedThesecashflowsarecalledincrementalcashflowsThestand-aloneprinciple-analyzeeachprojectinisolationfromthefirm(onitsownmerits)byfocusingonincrementalcashflows,10-3,2020/5/6,AskingtheRightQuestion,Youshouldalwaysaskyourself“WillthiscashflowoccurONLYifweaccepttheproject?”Iftheansweris“yes,”itshouldbeincludedintheanalysisbecauseitisincrementalIftheansweris“partofit,”thenweshouldincludethepartthatoccursbecauseoftheprojectIftheansweris“no,”itshouldnotbeincludedintheanalysisbecauseitwilloccuranyway,10-4,2020/5/6,CommonTypesofCashFlows,SunkcostscoststhathaveaccruedinthepastOpportunitycostscostsoflostoptionsSideeffectsPositivesideeffectsbenefitstootherprojectsNegativesideeffectscoststootherprojectsChangesinnetworkingcapitalTaxes(useafter-taxcashflows)DonotconsiderFinancingCosts(partofR),10-5,2020/5/6,ProFormaStatementsandCashFlow,Capitalbudgetingreliesheavilyonproformaaccountingstatements,particularlyincomestatementsComputingcashflows:OperatingCashFlow(OCF)=EBIT+depreciationtaxesOCF=Netincome+depreciation(whenthereisnointerestexpense)CashFlowFromAssets(CFFA)=OCFnetcapitalspending(NCS)changesinNWC,10-6,2020/5/6,Table10.1(p.310)ProFormaIncomeStatement,10-7,2020/5/6,Table10.2ProjectedCapitalRequirements(balancesheet),10-8,2020/5/6,2020/5/6,Capitalspendingatthetimeofprojectinception(i.e.,the“initialoutlay”)includesthefollowingitems:+purchasepriceofthenewasset-sellingpriceoftheassetreplaced(ifapplicable)+costsofsitepreparation,setup,andstartup+/-increase(decrease)intaxliabilityduetosaleofoldassetatotherthanbookvalue=netcapitalspending,Table10.5(p.311)ProjectedTotalCashFlows,10-10,2020/5/6,MakingTheDecision,Nowthatwehavethecashflows,wecanapplythetechniquesthatwelearnedinChapter9UseformulasforPVofdiscountedcashflowsShouldweacceptorrejecttheproject?,10-11,2020/5/6,MoreonNWC,WhydowehavetoconsiderchangesinNWCseparately?GAAPrequiresthatsalesberecordedontheincomestatementwhenmade,notwhencashisreceivedGAAPalsorequiresthatwerecordcostofgoodssoldwhenthecorrespondingsalesaremade,whetherwehaveactuallypaidoursuppliersyetFinally,wehavetobuyinventorytosupportsales,althoughwehaventcollectedcashyet,10-12,2020/5/6,Depreciation,ThedepreciationexpenseusedforcapitalbudgetingshouldbethedepreciationschedulerequiredbytheIRSfortaxpurposesDepreciationitselfisanon-cashexpense;consequently,itisonlyrelevantbecauseitaffectstaxesDepreciationtaxshield=DTD=depreciationexpenseT=marginaltaxrate,10-13,2020/5/6,ComputingDepreciation,Straight-lineDepreciationD=(Initialcostsalvage)/numberofyearsVeryfewassetsaredepreciatedstraight-linefortaxpurposesMACRS(ModifiedAcceleratedCostRecoverySystem)p.316NeedtoknowwhichassetclassisappropriatefortaxpurposesMultiplypercentagegivenintablebytheinitialcostDepreciatetozeroMid-yearconvention,10-14,2020/5/6,After-taxSalvage,After-taxsalvageisthecapitalrecoverycashflowatprojectend.Ifthesalvagevalueisdifferentfromthebookvalueoftheasset,thenthereisataxeffectBookvalue=initialcostaccumulateddepreciationAfter-taxsalvage=salvageTax*(salvagebookvalue),10-15,2020/5/6,Example:DepreciationandAfter-taxSalvage,Youpurchaseequipmentfor$100,000,anditcosts$10,000tohaveitdeliveredandinstalled.(Whatisthecapex?)Basedonpastinformation,youbelievethatyoucanselltheequipmentfor$17,000whenyouaredonewithitin6years.Thecompanysmarginaltaxrateis40%.Whatisthedepreciationexpenseeachyearandtheafter-taxsalvageinyear6foreachofthefollowingsituations?,10-16,2020/5/6,Example:Straight-line,Supposetheappropriatedepreciationscheduleisstraight-lineD=(110,00017,000)/6=15,500everyyearfor6yearsBVinyear6=110,0006(15,500)=17,000After-taxsalvage=17,000-.4(17,00017,000)=17,000,10-17,2020/5/6,Example:Three-yearMACRSp.316,BVinyear6=110,00036,66348,89516,2918,151=0,After-taxsalvage=17,000-.4(17,0000)=$10,200,10-18,2020/5/6,Example:Seven-YearMACRS,BVinyear6=110,00015,71926,93919,23913,7399,8239,812=14,729,After-taxsalvage=17,000.4(17,00014,729)=16,091.60,10-19,2020/5/6,Example:ReplacementProblem,OriginalMachineInitialcost=100,000Annualdepreciation=9,000Purchased5yearsagoBookValue=55,000Salvagetoday=65,000Salvagein5years=10,000,NewMachineInitialcost=150,0005-yearlifeSalvagein5years=0Costsavings=50,000peryear3-yearMACRSdepreciationRequiredreturn=10%Taxrate=40%,10-20,2020/5/6,ReplacementProblemComputingCashFlows,RememberthatweareinterestedinincrementalcashflowsIfwebuythenewmachine,thenwewillselltheoldmachineWhatarethecashflowconsequencesofsellingtheoldmachinetodayinsteadofin5years?,10-21,2020/5/6,ReplacementProblemProFormaIncomeStatements,10-22,2020/5/6,ReplacementProblemIncrementalNetCapitalSpending,Year0Costofnewmachine=150,000(outflow)After-taxsalvageonoldmachine=65,000-.4(65,00055,000)=61,000(inflow)Incrementalnetcapitalspending=150,00061,000=89,000(outflow)Year5After-taxsalvageonoldmachine=-10,000(outflowbecausewenolongerreceivethis),10-23,2020/5/6,ReplacementProblemCashFlowFromAssets,10-24,2020/5/6,ReplacementProblemAnalyzingtheCashFlows,Nowthatwehavethecashflows,wecancomputetheNPVandIRREnterthecashflowsComputeNPV=54,801.74ComputeIRR=36.28%Shouldthecompanyreplacetheequipment?,10-25,2020/5/6,OtherMethodsforComputingOCF,Bottom-UpApproachWorksonlywhenthereisnointerestexpenseOCF=NI+depreciationTop-DownApproachOCF=SalesCashCostsTaxesDontsubtractnon-cashdeductionsTaxShieldApproachOCF=(SalesCosts)(1T)+Depreciation*T,10-26,2020/5/6,Example:CostCutting,Yourcompanyisconsideringanewcomputersystemthatwillinitiallycost$1million.Thesystemisexpectedtolastforfiveyearsandwillbedepreciatedusing3-yearMACRS.Thesystemisexpectedtohaveasalvagevalueof$50,000attheendofyear5.Itwillsave$300,000peryearininventoryandreceivablesmanagementcosts.Thereisnoimpactonnetworkingcapital.Themarginaltaxrateis40%.Therequiredreturnis8%.ClickontheExcelicontoworkthroughtheexample,10-27,2020/5/6,Example:SettingtheBidPrice,Considerthefollowinginformation:Armyhasrequestedbidformultipleusedigitizingdevices(MUDDs)Deliver4unitseachyearforthenext3yearsLaborandmaterialsestimatedtobe$10,000perunitProductionspaceleasedfor$12,000peryearRequires$50,000infixedassetswithexpectedsalvageof$10,000attheendoftheproject(depreciatestraight-line)Requireinitial$10,000increaseinNWCTaxrate=34%Requiredreturn=15%,10-28,2020/5/6,Example:EquivalentAnnualCostAnalysis,BurnoutBatteriesInitialCost=$36each3-yearlife$100peryeartokeepchargedExpectedsalvage=$5Straight-linedepreciation,Long-lastingBatteriesInitialCost=$60each5-yearlife$88peryeartokeepchargedExpectedsalvage=$5Straight-linedepreciation,Themachinechosenwillbereplacedindefinitelyandneithermachinewillhaveadifferentialimpactonrevenue.NochangeinNWCisrequired.Therequiredreturnis15%,andthetaxrateis34%.,10-29,2020/5/6,QuickQuiz,Howdowedetermineifcashflowsarerelevanttothecapitalbu