财务管理课件chap009

1、mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwinmaking capital investment decisionschapter 9mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.1key concepts and skillsnunderstand how to determine the relevant cash flows for a

2、 proposed investmentnunderstand how to analyze a projects projected cash flowsnunderstand how to evaluate an estimated npvmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.2chapter outlinenproject cash flows: a first looknincremental cash flowsnpro forma financi

3、al statements and project cash flowsnmore on project cash flownevaluating npv estimatesnscenario and other what-if analysesnadditional considerations in capital budgetingmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.3relevant cash flowsnthe cash flows that s

4、hould be included in a capital budgeting analysis are those that will only occur if the project is acceptednthese cash flows are called incremental cash flowsnthe stand-alone principle allows us to analyze each project in isolation from the firm simply by focusing on incremental cash flowsmcgraw-hil

5、l 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.4asking the right questionnyou should always ask yourself “will this cash flow occur only if we accept the project?”nif the answer is “yes”, it should be included in the analysis because it is incrementalnif the answer is

6、“no”, it should not be included in the analysis because it will occur anywaynif the answer is “part of it”, then we should include the part that occurs because of the projectmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.5common types of cash flowsnsunk costs

7、 costs that have accrued in the pastnopportunity costs costs of lost optionsnside effectsnpositive side effects benefits to other projectsnnegative side effects costs to other projectsnchanges in net working capitalnfinancing costsntaxesmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights res

8、erved.mcgraw-hill/irwin9.6pro forma statements and cash flowncapital budgeting relies heavily on pro forma accounting statements, particularly income statementsncomputing cash flows refreshernoperating cash flow (ocf) = ebit + depreciation taxesnocf = net income + depreciation when there is no inter

9、est expensencash flow from assets (cffa) = ocf net capital spending (ncs) changes in nwcmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.7table 9.1 pro forma income statementsales (50,000 units at $4.00/unit)variable costs ($2.50/unit)gross profitfixed costsdep

10、reciation ($90,000 / 3)ebittaxes (34%)$200,000125,000$ 75,00012,00030,000$ 33,00011,220mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.8table 9.2 projected capital requirementsnwcnet fixed assetstotal investmentyear0$20,000 90,000$110,0001$20,000 60,000$80,000

11、2$20,000 30,000$50,0003$20,000 0$20,000mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.9table 9.5 projected total cash flowsocfchange in nwccapital spendingcffayear0-$20,000-$90,000-$110,001$51,780 $51,7802$51,780$51,7803$51,78020,000$71,780mcgraw-hill 2004 th

12、e mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.10making the decisionnnow that we have the cash flows, we can apply the techniques that we learned in chapter 8nenter the cash flows into the calculator and compute npv and irrncf0 = -110,000; c01 = 51,780; f01 = 2; c02 = 71,780nnp

13、v; i = 20; cpt npv = 10,648ncpt irr = 25.8%nshould we accept or reject the project?mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.11the tax shield approachnyou can also find operating cash flow using the tax shield approachnocf = (sales costs)(1 t) + deprecia

14、tion*tnthis form may be particularly useful when the major incremental cash flows are the purchase of equipment and the associated depreciation tax shield such as when you are choosing between two different machinesmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwi

15、n9.12more on nwcnwhy do we have to consider changes in nwc separately?ngaap requires that sales be recorded on the income statement when made, not when cash is receivedngaap also requires that we record cost of goods sold when the corresponding sales are made, regardless of whether we have actually

16、paid our suppliers yetnfinally, we have to buy inventory to support sales although we havent collected cash yetmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.13depreciationnthe depreciation expense used for capital budgeting should be the depreciation schedul

17、e required by the irs for tax purposesndepreciation itself is a non-cash expense, consequently, it is only relevant because it affects taxesndepreciation tax shield = dtnd = depreciation expensent = marginal tax ratemcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irw

18、in9.14computing depreciationnstraight-line depreciationnd = (initial cost salvage) / number of yearsnvery few assets are depreciated straight-line for tax purposesnmacrsnneed to know which asset class is appropriate for tax purposesnmultiply percentage given in table by the initial costndepreciate t

19、o zeronmid-year conventionmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.15after-tax salvagenif the salvage value is different from the book value of the asset, then there is a tax effectnbook value = initial cost accumulated depreciationnafter-tax salvage =

20、salvage t(salvage book value)mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.16example: depreciation and after-tax salvagenyou purchase equipment for $100,000 and it costs $10,000 to have it delivered and installed. based on past information, you believe that

21、you can sell the equipment for $17,000 when you are done with it in 6 years. the companys marginal tax rate is 40%. what is the depreciation expense each year and the after-tax salvage in year 6 for each of the following situations?mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved

22、.mcgraw-hill/irwin9.17example: straight-line depreciationnsuppose the appropriate depreciation schedule is straight-linend = (110,000 17,000) / 6 = 15,500 every year for 6 yearsnbv in year 6 = 110,000 6(15,500) = 17,000nafter-tax salvage = 17,000 - .4(17,000 17,000) = 17,000mcgraw-hill 2004 the mcgr

23、aw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.18example: three-year macrsyearmacrs percentd1.3333.3333(110,000) = 36,6632.4444.4444(110,000) = 48,8843.1482.1482(110,000) = 16,3024.0741.0741(110,000) = 8,151bv in year 6 = 110,000 36,663 48,884 16,302 8,151 = 0after-tax salvage = 17,0

24、00 - .4(17,000 0) = $10,200mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.19example: seven -year macrsyearmacrs percentd1.1429.1429(110,000) = 15,7192.2449.2449(110,000) = 26,9393.1749.1749(110,000) = 19,2394.1249.1249(110,000) = 13,7395.0893.0893(110,000) =

25、9,8236.0893.0893(110,000) = 9,823bv in year 6 = 110,000 15,719 26,939 19,239 13,739 9,823 9,823 = 14,718after-tax salvage = 17,000 - .4(17,000 14,718) = 16,087.20mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.20example: replacement problemnoriginal machinenin

26、itial cost = 100,000nannual depreciation = 9000npurchased 5 years agonbook value = 55,000nsalvage today = 65,000nsalvage in 5 years = 10,000nnew machineninitial cost = 150,000n5-year lifensalvage in 5 years = 0ncost savings = 50,000 per yearn3-year macrs depreciationnrequired return = 10%ntax rate =

27、 40%mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.21replacement problem computing cash flowsnremember that we are interested in incremental cash flowsnif we buy the new machine, then we will sell the old machinenwhat are the cash flow consequences of selling

28、 the old machine today instead of in 5 years?mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.22replacement problem pro forma income statementsyearcost savingsdepr. new oldincrem.ebittaxesni150,00049,5009,00040,5009,5003,8005,700250,00067,5009,00058,500(8,500)(

29、3,400)(5,100)350,00022,5009,00013,50036,50014,60021,900450,00010,5009,0001,50048,50019,40029,100550,00009,000(9,000)59,00023,60035,400mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.23replacement problem incremental net capital spendingnyear 0ncost of new mach

30、ine = 150,000 (outflow)nafter-tax salvage on old machine = 65,000 - .4(65,000 55,000) = 61,000 (inflow)nincremental net capital spending = 150,000 61,000 = 89,000 (outflow)nyear 5nafter-tax salvage on old machine = 10,000 - .4(10,000 10,000) = 10,000 (outflow because we no longer receive this)mcgraw

31、-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.24replacement problem cash flow from assetsyearocfncs in nwccffa0-89,0000-89,000146,20046,200253,40053,400335,40035,400430,60030,600526,400-10,000016,400mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reser

32、ved.mcgraw-hill/irwin9.25replacement problem analyzing the cash flowsnnow that we have the cash flows, we can compute the npv and irrnenter the cash flowsncompute npv = 54,812.10ncompute irr = 36.28%nshould the company replace the equipment?mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights

33、 reserved.mcgraw-hill/irwin9.26evaluating npv estimatesnthe npv estimates are just that estimatesna positive npv is a good start now we need to take a closer looknforecasting risk how sensitive is our npv to changes in the cash flow estimates, the more sensitive, the greater the forecasting risknsou

34、rces of value why does this project create value?mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.27scenario analysisnwhat happens to the npv under different cash flows scenarios?nat the very least look at:nbest case revenues are high and costs are lownworst ca

35、se revenues are low and costs are highnmeasure of the range of possible outcomesnbest case and worst case are not necessarily probable, they can still be possiblemcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.28sensitivity analysisnwhat happens to npv when we

36、 vary one variable at a timenthis is a subset of scenario analysis where we are looking at the effect of specific variables on npvnthe greater the volatility in npv in relation to a specific variable, the larger the forecasting risk associated with that variable and the more attention we want to pay

37、 to its estimationmcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.29new project examplenconsider the project discussed in the textnthe initial cost is $200,000 and the project has a 5-year life. there is no salvage. depreciation is straight-line, the required

38、return is 12% and the tax rate is 34%nthe base case npv is 15,567mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.30summary of scenario analysisscenariobase caseworst casebest casenet income19,800-15,51059,730cash flow59,80024,49099,730npv15,567-111,719159,504i

39、rr15.1%-14.4%40.9%mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.31summary of sensitivity analysisscenariobase caseworst casebest caseunit sales600055006500cash flow59,80053,20066,400npv15,567-8,22639,357irr15.1%10.3%19.7%mcgraw-hill 2004 the mcgraw-hill companies, inc. all rights reserved.mcgraw-hill/irwin9.32making a decisionnbeware “paralysis of analysis”nat some point yo