《财务管理英》PPT课件

,chapter1Indeterminingthepresentvaluewewilltalkaboutthediscountrateandpresentvalue.Thediscountrateissimplytheinterestratethatconvertsafuturevaluetothepresentvalue.,Example4.7Example4.8,PresentValue-singlesumsIfyouwillreceive$1005yearsfromnow,whatisthePVofthat$100ifyouropportunitycostis6%?,MathematicalSolution:PV=FV/(1+i)n=100/(1.06)5=$74.73PV=FV(PVIFi,n)=100(PVIF.06,5)(usePVIFtable)=$74.73,05,PV=?FV=100,PresentValue-singlesumsIfyousoldlandfor$11,933thatyoubought5yearsagofor$5,000,whatisyourannualrateofreturn?,MathematicalSolution:PV=FV(PVIFi,n)5,000=11,933(PVIF?,5)PV=FV/(1+i)n5,000=11,933/(1+i)5.419=(1/(1+i)5)2.3866=(1+i)5(2.3866)1/5=(1+i)i=0.19,Example4.9,TheTimeValueofMoney,CompoundingandDiscountingCashFlowStreams,Annuities,Annuity:asequenceofequalcashflows,occurringattheendofeachperiod.,ExamplesofAnnuities:,Ifyoubuyabond,youwillreceiveequalcouponinterestpaymentsoverthelifeofthebond.Ifyouborrowmoneytobuyahouseoracar,youwillpayastreamofequalpayments.,FutureValue-annuityIfyouinvest$1,000attheendofthenext3years,at8%,howmuchwouldyouhaveafter3years?,100010001000,MathematicalSolution:FV=PMT(FVIFAi,n)FV=1,000(FVIFA.08,3)(useFVIFAtable,or)FV=PMT(1+i)n-1iFV=1,000(1.08)3-1=$3246.400.08,Example4.11,PresentValue-annuityWhatisthePVof$1,000attheendofeachofthenext3years,iftheopportunitycostis8%?,100010001000,MathematicalSolution:PV=PMT(PVIFAi,n)PV=1,000(PVIFA.08,3)(usePVIFAtable,or)1PV=PMT1-(1+i)ni1PV=10001-(1.08)3=$2,577.10.08,Example4.12,Interpolationwithinfinancialtables:findingmissingtablevalues,Example1:PV=1000(PVIFA2.5%,6)Example2:1000=100(PVIFA?%,12months),Perpetuities,Supposeyouwillreceiveafixedpaymenteveryperiod(month,year,etc.)forever.Thisisanexampleofaperpetuity.Youcanthinkofaperpetuityasanannuitythatgoesonforever.,PresentValueofaPerpetuity,WhenwefindthePVofanannuity,wethinkofthefollowingrelationship:,PV=PMT(PVIFAi,n),Mathematically,(PVIFAi,n)=Wesaidthataperpetuityisanannuitywheren=infinity.Whathappenstothisformulawhenngetsvery,verylarge?,Whenngetsverylarge,1wereleftwithPVIFA=i,So,thePVofaperpetuityisverysimpletofind:PV=PMT/i,PresentValueofaPerpetuity,Whatshouldyoubewillingtopayinordertoreceive$10,000annuallyforever,ifyourequire8%peryearontheinvestment?,=$125,000,Example4.13,OtherCashFlowPatterns,OrdinaryAnnuityversusDueAnnuity,Earlier,weexaminedthis“ordinary”annuity:,Usinganinterestrateof8%,wefindthat:TheFutureValue(at3)is$3,246.40.ThePresentValue(at0)is$2,577.10.,100010001000,Whataboutthisannuity?,Same3-yeartimeline,Same3$1000cashflows,butThecashflowsoccuratthebeginningofeachyear,ratherthanattheendofeachyear.Thisisan“annuitydue.”,100010001000,0123,-1000-1000-1000,FutureValue-annuitydueIfyouinvest$1,000atthebeginningofeachofthenext3yearsat8%,howmuchwouldyouhaveattheendofyear3?,MathematicalSolution:SimplycompoundtheFVoftheordinaryannuityonemoreperiod:FV=PMT(FVIFAi,n)(1+i)FV=1,000(FVIFA.08,3)(1.08)(useFVIFAtable,or)FV=PMT(1+i)n1(1+i)iFV=1,000(1.08)3-1(1.08)=$3,506.110.08,0123,100010001000,PresentValue-annuitydueWhatisthePVof$1,000atthebeginningofeachofthenext3years,ifyouropportunitycostis8%?,MathematicalSolution:SimplycompoundtheFVoftheordinaryannuityonemoreperiod:PV=PMT(PVIFAi,n)(1+i)PV=1,000(PVIFA.08,3)(1.08)(usePVIFAtable,or)1PV=PMT1-(1+i)n(1+i)i1PV=10001-(1.08)3(1.08)=2,783.260.08,Isthisanannuity?HowdowefindthePVofacashflowstreamwhenallofthecashflowsaredifferent?(Usea10%discountrate).,UnevenCashFlows,UnevenCashFlows,Sorry!Theresnoquickieforthisone.Wehavetodiscounteachcashflowbackseparately.,periodCFPV(CF)0-10,000-10,000.0012,0001,818.1824,0003,305.7936,0004,507.8947,0004,781.09PVofCashFlowStream:$4,412.95,RetirementExample,Aftergraduation,youplantoinvest$400permonthinthestockmarket.Ifyouearn12%peryearonyourstocks,howmuchwillyouhaveaccumulatedwhenyouretirein30years?,MathematicalSolution:FV=PMT(FVIFAi,n)FV=400(FVIFA.01,360)(cantuseFVIFAtable)FV=PMT(1+i)n-1iFV=400(1.01)360-1=$1,397,985.65.01,HousePaymentExample,Ifyouborrow$100,000at7%fixedinterestfor30yearsinordertobuyahouse,whatwillbeyourmonthlyhousepayment?,MathematicalSolution:PV=PMT(PVIFAi,n)100,000=PMT(PVIFA.005833,360)(cantusePVIFAtable)1PV=PMT1-(1+i)ni1100,000=PMT1-(1.005833)360PMT=$665.300.005833,CalculatingPresentandFutureValuesforsinglecashflowsforanunevenstreamofcashflowsforannuitiesandperpetuitiesForeachproblemidentify:i,n,PMT,PVandFV,Summary,chapter9Riskandratesofreturn,Infinancialmarkets,firmsseekfinancingfortheirinvestmentsandshareholdersofacompanyachievemuchoftheirwealththroughsharepricemovements.Involvementwithfinancialmarketsisrisky.Thedegreeofriskvariesfromonefinancialsecuritytoanother.,Importantprinciple,Almostalwaystrue:Thegreatertheexpectedreturn,thegreatertherisk,1926-1999：theannualratesofreturninAmericanfinancialmarket,Ratesofreturn,HistoricalreturnThereturnthatanassethasalreadyproducedoveraspecifiedperiodoftimeExpectedreturnThereturnthatanassetisexpectedtoproduceoversomefutureperiodoftimeRequiredreturnThereturnthataninvestorrequiresanassettoproduceifhe/sheistobeafutureinvestorinthatasset,Ratesofreturn,NominalTheactualrateofreturnpaidorearnedwithoutmakinganyallowanceforinflationRealThenominalrateofreturnadjustedfortheeffectofinflationEffectiveThenominalrateofreturnadjustedformorefrequentcalculation(orcompounding)thanonceperannum,Whenaninterestrateisquotedinfinancialmarketsitisgenerallyexpressedasanominalrate.Forexample,ifabankadvertisesthatitwillpayinterestof5%perannumondeposits,thisinterestrateismostlikelytobethenominalrate.Wheninflationisdeductedfromthisnominalrate,therealrateofinterestisobtained.(Butthisisnotexactlycorrect!)Tobemoreprecise,Interestratedeterminants,Adjustingforinflation,Conceptually:,Nominalinterestratei,=,RealinterestrateR,+,Anticipatedinflationrater,Mathematically:,(1+i)=(1+R)(1+r)i=R+r+rR,Calculatingexpectedreturns,ReturnAB,4%10%14%,-10%14%30%,ExpectedreturnisjustaweightedaverageR*=P(R1)xR1+P(R2)xR2+P(Rn)xRn,Casestudy,CompanyAR*=P(R1)xR1+P(R2)xR2+P(Rn)xRnRA*=0.2x4%+0.5x10%+0.3x14%=10%,Casestudy,CompanyBR*=P(R1)xR1+P(R2)xR2+P(Rn)xRnRB*=0.2x-10%+0.5x14%+0.3x30%=14%,Basedonlyonyourexpectedreturncalculations,whichcompanysharewouldyouprefer?,Theaboveexampleillustratesthat,Althoughitisextremelydifficulttopredictwithaccuracywhatthereturnwillbeonaninvestment,whatwecandoismakepredictionsabouttherangeofreturns,theprobabilitywithwhichacertainreturnwilleventuateandhencethereturnthatwecouldexpecttoget.So,theexpectedrateofreturnmaybedefinedastheweightedaverageofallpossibleoutcomes!,HaveyouconsideredRISK?,Risk,WhatisriskTheuncertaintyorvariabilityordispersionaroundthemeanvalueHowtomeasureriskVariance,standarddeviation,betaHowtoreduceriskDiversificationHowtopriceriskSecuritymarketline,CAPM,APT,ForaTreasurysecurity,whatistherequiredrateofreturn?,Reason:Treasurysecuritiesarefreeofdefaultrisk,Foracompanysecurity,whatistherequiredrateofreturn?,Requiredrateofreturn,=,Risk-freerateofreturn,Howlargeariskpremiumshouldwerequiretobuyacorporatesecurity?,+,Foracompanystock,whatistherequiredrateofreturn?,Requiredrateofreturn,=,Risk-freerateofreturn,Howlargeariskpremiumshouldwerequiretobuyastock?,+,Almostalwaystrue:Thegreatertheexpectedreturn,thegreatertherisk,1926-1999：theannualratesofreturninAmericanfinancialmarket,Whatisrisk?,ThepossibilitythatanactualreturnwilldifferfromourexpectedreturnUncertaintyinthedistributionofpossibleoutcomes,Uncertaintyinthedistributionofpossibleoutcomes,return(%),return(%),Howdowemeasurerisk?,Generalidea:SharespricerangeoverthepastyearMorescientificapproach:SharesstandarddeviationofreturnsStandarddeviationisameasureofthedispersionofpossibleoutcomesThegreaterthestandarddeviation,thegreatertheuncertainty,andtherefore,thegreatertherisk,Standarddeviationprobabilitydata,CalculatingStandarddeviation,ReturnAB,4%10%14%,-10%14%30%,RA=10%RB=14%,Casestudy,CompanyA(4%-10%)2(0.2)=7.2(10%-10%)2(0.5)=0.0(14%-10%)2(0.3)=4.8,Variance=s2=12.0Standarddeviation=12.0=3.46%,Casestudy,CompanyB(-10%-14%)2(0.2)=115.2(14%-14%)2(0.5)=0.0(30%-14%)2(0.3)=76.8,Variance=s2=192.0Standarddeviation=,192.0=13.86%,Casestudysummary,Casestudy,Whichsharewouldyouprefer?Howwouldyoudecide?,Rememberthetrade-off!,Whichsharedoyouprefer?,Thatmeansthereisnosinglerightanswer!,Investorsattitudetowardsrisk,Risk-averse:TrytoavoidriskRisk-loveTrytoaccepthighriskRisk-neutralTobeindifferencetorisk,Portfolios,Combiningseveralsecuritiesinaportfolio,Can,Howdoesthiswork?,Two-shareportfolio,Perfectnegativecorrelationremovesrisk,Simplediversification,Investingintwosecuritiestoreducerisk,Portfoliorisk,Dependson:ProportionoffundsinvestedineachassetTheriskassociatedwitheachassetintheportfolioTherelationshipbetweeneachassetintheportfoliowithrespecttorisk,Questions,Ifyouownedashareofeverystocktradedonthemarket,wouldyoubediversified?,YES!,Wouldyouhaveeliminatedallofyourrisk?,NO!Considerstockmarket“crashes”!,Twotypesofriskinaportfolio,DiversifiableriskFirm-specificriskCompany-uniqueriskUnsystematicriskNon-diversifiableriskMarket-relatedriskMarketriskSystematicrisk,Possiblecausesofrisk,MarketriskUnexpectedchangesininterestratesUnexpectedchangesincashflowsTaxchangesForeigncompetitionOverallbusinesscycleUnexpectedwar,Firm-specificriskAcompanyslabourforcegoesonstrikeAcompanystopmanagementdiesinaplanecrashAhugeoiltankburstsandfloodsacompanysproductionarea,Howmuchdiversification?,Almostallpossiblegainsfromdiversificationareachievedwithacarefullychosenportfolioof20shares,Beforemovingon,remember:,Notallriskisequal;someriskcanbediversifiedawayandsomecannot.Aswediversifyourportfolio,wereducetheeffectsofacompany-uniquerisk,butnon-diversifiableriskormarketriskstillremainsnomatterhowmuchwediversify.Theeffectofdiversificationisgreatestwhentheassetsreturnsinaportfolioareperfectlynegativelycorrelated.Whenassetsreturnsareperfectlypositivelycorrelated,noriskreductionisachieved.Standarddeviationisameasureoftotalriskforasingleasset.Whentheassetisincludedinadiversifiedportfolio,themorerelevantmeasureofriskismarketrisk.,Levelofmarketrisk,Dosomefirmshavemoremarketriskthanothers?,YES,Riskandreturn,InvestorsareonlycompensatedforacceptingmarketriskFirm-specificriskshouldbediversifiedaway,Aneedtomeasuremarketriskforafirm,Betaisameasureofafirmsmarketriskorsystematicrisk,whichistheriskthatremainsevenafterwehavediversifiedourportfolio!,Beta:Ameasureofmarketrisk,Ameasureof:HowanindividualsharesreturnsvarywithmarketreturnsThe“sensitivity”ofanindividualsharesreturnstochangesinthemarket,Forthemarket:Beta=1AfirmwithBeta=1hasaveragemarketrisk.ithasthesamevolatilityasthemarketAfirmwithBeta1ismorevolatilethanthemarketAfirmwithBetadiscountrate,thebondwillsellforapremiumIfthecouponratediscountrate,thebondwillsellforadiscount,Analysis:i=14/2=7n=20 x2=40FV=1000PMT=60,Modifiedcasestudy,Supposenowourfirmdecidestoissue20-yearbondswithaparvalueof$1,000andsemi-annualcouponpayments.Westillofferacouponrateof12%butimmediatelyafterissue,interestratesriseto14%Whathappenstothepriceofthesenewly-issuedbonds?,PV=?,Mathematicalsolution,Casestudy,PV=PMT1(1+i)-n/i+FV/(1+i)n=6011.07-40/0.07+1000/1.0740=866.68orusingtablesPV=PMTxPVIFAi,n+FVxPVIFi,n=60 xPVIFA7%,40+1000 xPVIF7%,40=866.68,Yieldtomaturity,Theaverageannualrateofreturninvestorsexpecttoreceiveonabondiftheyholdittomaturity,Justsolvefori!,YTMexample,PV=-898.90n=8x2=16FV=1000PMT=100/2=50,Supposewepaid$898.90fora$1,000par10%couponbondwith8yearstomaturityandsemi-annualcouponpayments.Whatisouryieldtomaturity?,i=?per6mthsYTM=2x?p.a.,YTMExample,$898.90=$50(PVIFAi,16)+$1000(PVIFAi,16)Bondissellingatadiscounttoitsparvalue($1000).Therefore,YTMmustbegreaterthanthecouponrate(10%).,YTMExample,TrialanderrorAt10%themarketvaluewouldequalparvalueasthecouponrateequalstherequiredrateofreturn.Try12%whereI=12/2=6%andn=8x2=16PV=$50(10.106)+$1000(0.394)=$899.30YTMmustbeverycloseto12%as$899.30isveryclosetothemarketvalueof$898.90.Letscontinuetheprocesstogetamoreaccurateanswer.,YTMExample,TrialanderrorTry14%whereI=14/2=7%andn=16PV=$50(9.447)+$1000(0.339)=$811.35InterpolationIPV12%$899.30?$898.9014%$811.35,YTMExample,Interpolationd1=d2(d3/d4)D2=.12-.14=0.02D3=$899.30-898.90=$0.40D4=899.30811.35=$87.95D1=0.02(0.40/87.95)=0.00009Unknownrate=0.12+0.00009=.12009or12.009%,YTMExampleasimpleway,$Ip.a.+($M-$Po)/NyearsYTM=-($M+$Po)/2YTM=100+(1000-898.90)/8/(1000+898.90)/2YTM=112.63/949.45=.1186or11.9%Note:Thisisonlyacrudeapproximationandshouldnotbeusedinprofessionalapplications!,Preferenceshares,AhybridsecurityLikeordinarysharesnofixedmaturitypartofequitycapitalLikedebtpreferreddividendsarefixeddividend=issuepricexcouponrate,Canhaveavarietyoffeaturesredeemablecumulativevotingconvertible,Preferencesharevaluation,Preferredstockscanusuallybevaluedlikeaperpetuity:,Preferenceshareexample,XYZpreferencesharespaya$4.12dividendperyear.IfourrequiredrateofreturnonXYZpreferencesharesis9.5%,whatwouldweconsiderafairpricefortheseshares?,Vp=D/Rp=4.12/0.095=$43.37,Expectedrateofreturnonpreferredshares,Justadjustthevaluationmodel:Vp=D/RpRp=D/VpRp=D/P0,Example,Ifweknowthepreferredsharepriceis$40,andthepreferreddividendis$4,theexpectedreturnis:,Rp=D/P0=$4/$40=0.10=10%,Ordinaryshares,Variable-incomesecuritiesDividendsdependonearningsDividendsmayriseorfallRepresentequityorownershipIncludevotingrightsPriority:LowerthandebtLowerthanpreferredshares,Ordinarysharevaluation,Singleholdingperiod,VE=,PVofdividendD1,+,PVofexpectedmarketpriceP1,VE=,+,Example,YouexpectXYZsharestopaya$5.50dividendattheendoftheyear.Thesharepriceisexpectedtobe$120atthattime.Ifyourequirea15%rateofreturn,whatwouldyoupayforthesharenow?,?,5.50120,PMT=0i=15n=1FV=125.50COMPPV,solution1,PV=$109.13,Ordinarysharevaluation,Ordinarysharevaluation,Assumesordinarydividendswillgrowataconstantrateintothefuture,D1=thedividendattheendofyear1RE=therequiredrateofreturnonordinarysharesg=theconstant,annualdividendgrowthrate,Example,XYZsharesrecentlypaida$5.00dividend.Thedividendisexpectedtogrowat10%peryearindefinitely.WhatwouldwebewillingtopayifourrequiredrateofreturnonXYZsharesis15%?,D1=D0(1+g)=$5.00 x1.10=$5.50VE=D1/(REg)=$5.50/(0.150.10)=$110,Requiredratesofreturn,AfinancialmanagerisinterestedinthemarketsimpliedrequiredrateofreturnforthefirmssecuritiesAdaptingthevaluationmodelsleadstotheimpliedrateofreturn,Expectedratesofreturn,VE=D1/(REg)RE=D1/VE+g,ButsinceVE=P0RE=D1/P0+g,Example,Weknowasharewillpay$3dividendinoneyearstime,hasacurrentpriceof$27,andanexpectedgrowthrateforthefutureof5%.Whatisthemarketsimpliedrateofreturn?,RE=D1/P0+g=$3/$27+0.05=0.1611=16.11%,PracticeProblem:,Findtheintrinsicvalueofanordinarysharewiththefollowinginformation:Beta=1.4recentdividend=$4.30expectedgrowthindividendis8%Treasurybondyield=7.5%ReturnontheAllOrds=12%Marketpriceforordinaryshare=$100Shouldyoubuytheshare?,PracticeProblem:,Findtheintrinsicvalueofanordinarysharewiththefollowinginformation:UsetheCAPMtofindtherequiredRateRequiredrate=0.075+1.4(.12-.075)=0.138or13.8%UsethevaluationmodelassumingcontinuedconstantgrowthVe=4.30(1.08)/.138-.08=$80Ifthemarketvalueexceedstheintrinsicvaluedonotbuy.,Summary,UnderstandthevariousdefinitionsgivenforthetermvalueBeabletoexplainthebasicconceptofvaluinganassetKnowhowtovaluebonds,preferencesharesandordinarysharesBeabletocomputetheexpectedrateofreturnonbonds,preferencesharesandordinaryshares,EndofChapter10,chapter11ortherateofreturnthatmakestheNPVequalto0.,IRRversusNPV,IRR,NPV,IfIRRRAcceptIfIRRRReject,CalculatingIRR,Usingtheequation:,IRR=17.63%,Shouldweproceedwiththisproject?,NPV=-276400+83000*PVIFAIRR,4+116000*PVIFIRR,5=0,PotentialproblemwithIRR,Thereisnoproblemforconventionalcashflows:(-+)Iftherearemultiplesignchangesinthecashflowstream,wecouldgetmultipleIRRsFor(-+-+)wecouldget3differentIRRs,Example,Usingarequiredrateofrateofreturnof15%,findtheNPV,PIandIRRforthefollowingcashflows:,NPV=$510.52IRR=34.37%PI=(NPV+IO)/IO=(510.52+900)/900=1.57,Non-discountedcashflowcriteria,PaybackperiodAccountingrateofreturn,Paybackperiod,Thenumberofyearsneededtorecovertheinitialcashoutlay,Alternatively:Howlongwillittakefortheprojecttogenerateenoughcashtopayforitself?,Paybackperiodexample,Supposeourfirmisconsideringaprojectwhichwillgeneratecashflowsof$150,000peryearforthenext8yearsandhaveaninitialcashoutlayof$500,000.Whatistheprojectspaybackperiod?,-500,150,150,150,150,150,150,150,150,Paybackperiod=3.33years,Exampledecision,Isa3.33yearpaybackperiodacceptable?WeshouldcomparethisvaluewithsomestandardsetbythefirmIfseniormanagementhavesetacut-offperiodof5yearsforprojectlikeours,whatwouldbeourdecision?Accepttheproject,Limitationsofpaybackperiod,Firmcut-offstandardsaresubjectiveDoesnotconsiderthetimevalueofmoneyDoesnotconsideranyrequiredrateofreturnDoesnotconsideralloftheprojectscashflows,Discountedpaybackperiod,DiscountsthecashflowsatthefirmsrequiredrateofreturnPaybackperiodiscalculatedusingthesediscountednetcashflowsProblemsCut-offsarestillsubjectiveStilldoesnotexamineallcashflows,Accountingrateofreturn,Relatestheaverageaccountingprofitsgeneratedbytheprojecttotheaveragedollarsizeoftheinvestmentrequired,LimitationsoftheAROR,TimevalueofmoneyisignoredConcernedwithaccountingprofitsratherthancashflows,CashisinterestingCashhasvalueCashisKing!,Cash-flowidentification,Howtoidentifycashflowsassociatedwithaproject?,Measuringaprojectsbenefitsandcosts,Capitalbudgetingdecisionsmustalwaysbebasedonincremental(ordifferential)cashflows,Ifacashflowexistswiththeprojectanddoesnotexistwithouttheproject,itisincrementalalsoexistswithouttheproject,itisnotincremental,Taxissues,TaxpaymentsduetotheprojectincreasingcashflowsTaxsavingsduetotheprojectreducingcashflowsTaxdeductionsincludingdepreciationTaxtiming,Timepatternofaprojectscashflows,TheinitialoutlayThedifferentialcashflowsovertheprojectslifeTheterminalcashflow,Initialoutlay,Typicalitems:InstalledcostofassetAdditionalnon-expenseoutlaysincurrede.g.Working-capitalinvestmentsAdditionalexpensese.g.TrainingexpensesCashflowsassociatedwiththesaleofareplacedassetTaxeffects,Differentialcashflowsovertheprojectslife,Typicalitems:AddedrevenuefromincrementalsalesExtraexpensesLabourandmateria