罗斯公司理财Chpt008

1、McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.8-0Corporate Finance Ross Westerfield JaffeSixth EditionSixth Edition8Chapter Eight Strategy and Analysis in Using Net Present ValueMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies, Inc. All rights res

2、erved.8-1Chapter Outline8.1 Corporate Strategy and Positive NPV8.2 Decision Trees8.3 Sensitivity Analysis, Scenario Analysis, and Break-Even Analysis8.4 Options8.5 Summary and ConclusionsMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.8-2Introduce new products

3、Apple Corporation and the pcDevelop core technology Honda and small enginesCreate barrier to entry Qualcomms patents on proprietary technologyIntroduce variations on existing products Chryslers minivan.Create product differentiation Coca-Colaits the real thingUtilize organizational innovation Motoro

4、la just-in-time inventory managementExploit a new technology Yahoo!s use of banner advertisements on the web Corporate Strategy and Positive NPVMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.8-3McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies, Inc.

5、 All rights reserved.8-4Corporate Strategy and the Stock Market There should be a connection between the stock market and capital budgeting. If the firm invests in a positive NPV projects, the firms stock price should go up. Sometimes the stock market provides negative clues as to a new projects NPV

6、. Consider AT&Ts repeated attempts to penetrate the computer-manufacturing industry.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.8-58.2 Decision Trees Allow us to graphically represent the alternatives available to us in each period and the likely conseq

7、uences of our actions.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.8-6Example of Decision TreeDo not studyStudy financeOpen circles represent decisions to be made.Filled circles represent receipt of information e.g. a test score in this class.The lines leadi

8、ng away from the circles represent the alternatives.“C”“A”“B”“F”“D”McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.8-7Stewart Pharmaceuticals The Stewart Pharmaceuticals Corporation is considering investing in developing a drug that cures the common cold. A cor

9、porate planning group, including representatives from production, marketing, and engineering, has recommended that the firm go ahead with the test and development phase. This preliminary phase will last one year and cost $1billion. Furthermore, the group believes that there is a 60% chance that test

10、s will prove successful. If the initial tests are successful, Stewart Pharmaceuticals can go ahead with full-scale production. This investment phase will cost $1,600 million. Production will occur over the next 4 years.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies, Inc. All rights res

11、erved.8-8Stewart Pharmaceuticals NPV of Full-Scale Production following Successful TestNote that the NPV is calculated as of date 1, the date at which the investment of $1,600 million is made. Later we bring this number back to date 0. InvestmentYear 1Years 2-5Revenues$7,000Variable Costs(3,000)Fixe

12、d Costs(1,800)Depreciation(400)Pretax profit$1,800Tax (34%)(612)Net Profit$1,188Cash Flow-$1,600$1,58875.433, 3$)10. 1 (588, 1$600, 1$41ttNPVMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.8-9Decision Tree for Stewart PharmaceuticalDo not testTestFailureSuccess

13、Do not investInvestInvest611, 3$NPV0$NPVThe firm has two decisions to make:To test or not to test.To invest or not to invest.mNPV75.433, 3$0$NPVMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.8-10Stewart Pharmaceutical: Decision to Test Lets move back to the fi

14、rst stage, where the decision boils down to the simple question: should we invest? The expected payoff evaluated at date 1 is:failuregiven PayofffailureProb.successgiven PayoffsucessProb.payoffExpected 25.060, 2$0$40.75.433, 3$60.payoffExpected95.872$10. 125.060, 2$000, 1$NPV The NPV evaluated at da

15、te 0 is:So we should test.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.8-118.3 Sensitivity Analysis, Scenario Analysis, and Break-Even Analysis Allows us to look the behind the NPV number to see firm our estimates are. When working with spreadsheets, try to

16、build your model so that you can just adjust variables in one cell and have the NPV calculations key to that.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.8-12Sensitivity Analysis and Scenario AnalysisIn the Stewart Pharmaceutical example, revenues were proje

17、cted to be $7,000,000 per year.If they are only $6,000,000 per year, the NPV falls to $1,341.64 Also known as “what if” analysis or bop (best, optimistic, pessimistic); we examine how sensitive a particular NPV calculation is to changes in the underlying assumptions.64.341, 1$)10. 1 (928$600, 1$41tt

18、NPVInvestmentYear 1Years 2-5Revenues$6,000Variable CostsFixed CostsDepreciationPretax profitTax (34%)Net ProfitCash Flow-$1,600InvestmentYear 1Years 2-5Revenues$6,000Variable Costs(3,000)Fixed CostsDepreciationPretax profitTax (34%)Net ProfitCash Flow-$1,600InvestmentYear 1Years 2-5Revenues$6,000Var

19、iable Costs(3,000)Fixed Costs(1,800)DepreciationPretax profitTax (34%)Net ProfitCash Flow-$1,600InvestmentYear 1Years 2-5Revenues$6,000Variable Costs(3,000)Fixed Costs(1,800)Depreciation(400)Pretax profitTax (34%)Net ProfitCash Flow-$1,600InvestmentYear 1Years 2-5Revenues$6,000Variable Costs(3,000)F

20、ixed Costs(1,800)Depreciation(400)Pretax profit$800Tax (34%)Net ProfitCash Flow-$1,600InvestmentYear 1Years 2-5Revenues$6,000Variable Costs(3,000)Fixed Costs(1,800)Depreciation(400)Pretax profit$800Tax (34%)(272)Net ProfitCash Flow-$1,600InvestmentYear 1Years 2-5Revenues$6,000Variable Costs(3,000)Fi

21、xed Costs(1,800)Depreciation(400)Pretax profit$800Tax (34%)(272)Net Profit$528Cash Flow-$1,600InvestmentYear 1Years 2-5Revenues$6,000Variable Costs(3,000)Fixed Costs(1,800)Depreciation(400)Pretax profit$800Tax (34%)(272)Net Profit$528Cash Flow-$1,600$928McGraw-Hill/IrwinCopyright 2002 by The McGraw-

22、Hill Companies, Inc. All rights reserved.8-13Sensitivity Analysis%29.14000, 7$000, 7$000, 6$Rev% We can see that NPV is very sensitive to changes in revenues. For example, a 14% drop in revenue leads to a 61% drop in NPV%93.6075.433, 3$75.433, 3$64.341, 1$%NPVFor every 1% drop in revenue we can expe

23、ct roughly a 4.25% drop in NPV%29.14%93.6025. 4McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.8-14Scenario AnalysisA variation on sensitivity analysis is scenario analysis.For example, the following three scenarios could apply to Stewart Pharmaceuticals:The ne

24、xt years each have heavy cold seasons, and sales exceed expectations, but labor costs skyrocket.The next years are normal and sales meet expectations.The next years each have lighter than normal cold seasons, so sales fail to meet expectations.Other scenarios could apply to FDA approval for their dr

25、ug.1.For each scenario, calculate the NPV.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.8-15Break-Even Analysis Another way to examine variability in our forecasts is break-even analysis. In the Stewart Pharmaceuticals example, we could be concerned with brea

26、k-even revenue, break-even sales volume or break-even price. The break-even NCF is given by:75.504$16987. 3600, 1$)10. 1 ($600, 1$041IATCFNCFNPVttMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.8-16Break-Even Analysis We can start with the break-even incrementa

27、l after-tax cash flow and work backwards through the income statement to back out break-even revenue:InvestmentcalculationCash Flow RevenuesVariable CostsFixed CostsDepreciationPretax profitTax (34%)Net ProfitCash Flow$504.75InvestmentcalculationCash Flow RevenuesVariable CostsFixed CostsDepreciatio

28、nPretax profitTax (34%)Net Profit= 504 - depreciation$104.75Cash Flow$504.75InvestmentcalculationCash Flow RevenuesVariable CostsFixed CostsDepreciationPretax profit= 104.75 (1-.34)$158.72Tax (34%)Net Profit= 504 - depreciation$104.75Cash Flow$504.75InvestmentcalculationCash Flow Revenues= 158.72+VC

29、+FC+D$5,358.72Variable Costs(3,000)Fixed Costs(1,800)Depreciation(400)Pretax profit= 104.75 (1-.34)$158.72Tax (34%)Net Profit= 504 - depreciation$104.75Cash Flow$504.75McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.8-17Break-Even Analysis Now that we have brea

30、k-even revenue as $5,358.72 million we can calculate break-even price and sales volume. If the original plan was to generate revenues of $7,000 million by selling the cold cure at $10 per dose and selling 700 million doses per year, we can reach break-even revenue with a sales volume of only:yearper

31、 million 87.535$10$72.358, 5$ volumesaleseven -Break volume)sales(price72.358, 5$We can reach break-even revenue with a price of only:doseper 65. 7$dosesmillion 7million72.358, 5$priceeven -BreakMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.8-188.4 Options On

32、e of the fundamental insights of modern finance theory is that options have value. The phrase “We are out of options” is surely a sign of trouble.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.8-19Options Because corporations make decisions in a dynamic enviro

33、nment, they have options that should be considered in project valuation. The Option to Expand Has value if demand turns out to be higher than expected. The Option to Abandon Has value if demand turns out to be lower than expected. The Option to Delay Has value if the underlying variables are changin

34、g with a favorable trend.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.8-20The Option to Delay: Example Consider the above project, which can be undertaken in any of the next 4 years. The discount rate is 10 percent. The present value of the benefits at the t

35、ime the project is launched remain constant at $25,000, but since costs are declining the NPV at the time of launch steadily rises. The best time to launch the project is in year 2this schedule yields the highest NPV when judged today.YearCostPVNPV tNPV 0020,000$ 25,000$ 5,000$ 5,000$ 118,000$ 25,00

36、0$ 7,000$ 6,364$ 217,100$ 25,000$ 7,900$ 6,529$ 316,929$ 25,000$ 8,071$ 6,064$ 416,760$ 25,000$ 8,240$ 5,628$ 2)10. 1 (900, 7$529, 6$McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.8-21Discounted Cash Flows and Options We can calculate the market value of a pro

37、ject as the sum of the NPV of the project without options and the value of the managerial options implicit in the project.OptNPVMA good example would be comparing the desirability of a specialized machine versus a more versatile machine. If they both cost about the same and last the same amount of t

38、ime the more versatile machine is more valuable because it comes with options.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.8-22The Option to Abandon: Example Suppose that we are drilling an oil well. The drilling rig costs $300 today and in one year the well

39、 is either a success or a failure. The outcomes are equally likely. The discount rate is 10%. The PV of the successful payoff at time one is $575. The PV of the unsuccessful payoff at time one is $0.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.8-23The Option

40、 to Abandon: Example failuregiven PayofffailureProb.successgiven PayoffsucessProb.payoffExpected 5 .287$05 . 0575$5 . 0payoffExpected64.38$)10. 1 (50.287$300$tNPVTraditional NPV analysis would indicate rejection of the project.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies, Inc. All ri

41、ghts reserved.8-24The Option to Abandon: ExampleThe firm has two decisions to make: drill or not, abandon or stay.Do not drillDrill0$NPV500$FailureSuccess: PV = $575Sell the rig; salvage value = $250 Sit on rig; stare at empty hole: PV = $0.Traditional NPV analysis overlooks the option to abandon.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.8-25The Option to Abandon: Example failuregiven PayofffailureProb.successgiven PayoffsucessProb.payoffExpected 50.412$0255 . 0575$5 . 0payoffExpected00.75$)10. 1 (50.412$300$tNP