《公司理财》相关资料

1、Making Capital Investment Decisions Chapter 8Key Concepts and SkillsUnderstand how to determine the relevant cash flows for various types of capital investmentsBe able to compute depreciation expense for tax purposesIncorporate inflation into capital budgetingUnderstand the various methods for compu

2、ting operating cash flowApply the Equivalent Annual Cost approachChapter Outline8.1 Incremental Cash Flows8.2 The Baldwin Company: An Example8.3 Inflation and Capital Budgeting8.4 Alternative Definitions of Cash Flow8.5 Investments of Unequal Lives: The Equivalent Annual Cost Method8.1 Incremental C

3、ash FlowsCash flows matternot accounting earnings.Sunk costs dont matter.Incremental cash flows matter.Opportunity costs matter.Side effects like cannibalism and erosion matter.Taxes matter: we want incremental after-tax cash flows. Inflation matters.Cash FlowsNot AccountingConsider depreciation exp

4、ense. You never write a check made out to “depreciation.”Much of the work in evaluating a project lies in taking accounting numbers and generating cash flows.Incremental Cash FlowsSunk costs are not relevantJust because “we have come this far” does not mean that we should continue to throw good mone

5、y after bad.Opportunity costs do matter. Just because a project has a positive NPV, that does not mean that it should also have automatic acceptance. Specifically, if another project with a higher NPV would have to be passed up, then we should not proceed.Incremental Cash FlowsSide effects matter.Er

6、osion and cannibalism are both bad things. If our new product causes existing customers to demand less of current products, we need to recognize that.If, however, synergies result that create increased demand of existing products, we also need to recognize that.Estimating Cash FlowsCash Flow from Op

7、erationsRecall that:OCF = EBIT Taxes + DepreciationNet Capital SpendingDont forget salvage value (after tax, of course).Changes in Net Working CapitalRecall that when the project winds down, we enjoy a return of net working capital.Interest ExpenseLater chapters will deal with the impact that the am

8、ount of debt that a firm has in its capital structure has on firm value.For now, its enough to assume that the firms level of debt (and, hence, interest expense) is independent of the project at hand.8.2 The Baldwin CompanyCosts of test marketing (already spent): $250,000Current market value of prop

9、osed factory site (which we own): $150,000Cost of bowling ball machine: $100,000 (depreciated according to MACRS 5-year)Increase in net working capital: $10,000Production (in units) by year during 5-year life of the machine: 5,000, 8,000, 12,000, 10,000, 6,000The Baldwin CompanyPrice during first ye

10、ar is $20; price increases 2% per year thereafter.Production costs during first year are $10 per unit and increase 10% per year thereafter.Annual inflation rate: 5%Working Capital: initial $10,000 changes with salesThe Baldwin CompanyYear 0Year 1Year 2Year 3Year 4 Year 5 Investments:(1) Bowling ball

11、 machine100.00 21.76*(2) Accumulated 20.0052.0071.2082.72 94.24 depreciation(3)Adjusted basis of 80.0048.0028.8017.28 5.76 machine after depreciation (end of year)(4)Opportunity cost150.00 150.00(warehouse)(5)Net working capital 10.00 10.0016.3224.9721.22 0 (end of year)(6)Change in net 10.006.32 8.

12、653.75 21.22 working capital(7)Total cash flow of260.00 6.32 8.653.75 192.98 investment(1) + (4) + (6)($ thousands) (All cash flows occur at the end of the year.)The Baldwin CompanyAt the end of the project, the warehouse is unencumbered, so we can sell it if we want to.Year 0Year 1Year 2Year 3Year

13、4 Year 5 Investments:(1) Bowling ball machine100.00 21.76*(2) Accumulated 20.0052.0071.2082.72 94.24 depreciation(3)Adjusted basis of 80.0048.0028.8017.28 5.76 machine after depreciation (end of year)(4)Opportunity cost150.00 150.00(warehouse)(5)Net working capital 10.00 10.0016.3224.9721.22 0 (end

14、of year)(6)Change in net 10.006.32 8.653.75 21.22 working capital(7)Total cash flow of260.00 6.32 8.653.75 192.98 investment(1) + (4) + (6)The Baldwin CompanyYear 0Year 1Year 2Year 3Year 4 Year 5Income: (8) Sales Revenues100.00163.20249.72212.20 129.90 Recall that production (in units) by year durin

15、g the 5-year life of the machine is given by: (5,000, 8,000, 12,000, 10,000, 6,000).Price during the first year is $20 and increases 2% per year thereafter.Sales revenue in year 3 = 12,000$20(1.02)2 = 12,000$20.81 = $249,720.The Baldwin CompanyYear 0Year 1Year 2Year 3Year 4 Year 5Income: (8) Sales R

16、evenues100.00163.20249.72212.20 129.90 (9) Operating costs 50.00 88.00145.20 133.10 87.84Again, production (in units) by year during 5-year life of the machine is given by: (5,000, 8,000, 12,000, 10,000, 6,000).Production costs during the first year (per unit) are $10, and they increase 10% per year

17、 thereafter.Production costs in year 2 = 8,000$10(1.10)1 = $88,000The Baldwin CompanyYear 0Year 1Year 2Year 3Year 4 Year 5Income: (8) Sales Revenues100.00163.20249.72212.20 129.90 (9) Operating costs 50.00 88.00145.20 133.10 87.84(10) Depreciation 20.00 32.00 19.20 11.52 11.52Depreciation is calcula

18、ted using the Accelerated Cost Recovery System (shown at right).Our cost basis is $100,000.Depreciation charge in year 4 = $100,000(.1152) = $11,520.YearACRS % 120.00% 232.00%319.20%411.52%511.52%65.76%Total100.00%The Baldwin CompanyYear 0Year 1Year 2Year 3Year 4 Year 5Income: (8) Sales Revenues100.

19、00163.20249.72212.20 129.90 (9) Operating costs 50.00 88.00145.20 133.10 87.84(10) Depreciation 20.00 32.00 19.20 11.52 11.52(11) Income before taxes 30.00 43.20 85.32 67.58 30.54 (8) (9) - (10)(12) Tax at 34 percent 10.20 14.69 29.01 22.98 10.38(13) Net Income 19.80 28.51 56.31 44.60 20.16Increment

20、al After Tax Cash Flows Year 0Year 1Year 2Year 3Year 4Year 5(1) Sales Revenues$100.00$163.20$249.72$212.20$129.90(2) Operating costs-50.00-88.00-145.20133.10-87.84(3) Taxes-10.20-14.69-29.01-22.98-10.38(4) OCF(1) (2) (3)39.8060.5175.5156.1231.68(5) Total CF of Investment260.6.328.653.75192.98(6) IAT

21、CF(4) + (5)260. 39.8054.1966.8659.87224.66NPV of Baldwin Company139.8051.588260CF1F1CF0INPV10154.19CF2F2166.86CF3F3159.87CF4F41224.66CF5F58.3 Inflation and Capital BudgetingInflation is an important fact of economic life and must be considered in capital budgeting.Consider the relationship between i

22、nterest rates and inflation, often referred to as the Fisher equation:(1 + Nominal Rate) = (1 + Real Rate) (1 + Inflation Rate)Inflation and Capital BudgetingFor low rates of inflation, this is often approximated: Real Rate Nominal Rate Inflation RateWhile the nominal rate in the U.S. has fluctuated

23、 with inflation, the real rate has generally exhibited far less variance than the nominal rate.In capital budgeting, one must compare real cash flows discounted at real rates or nominal cash flows discounted at nominal rates.Other Methods for Computing OCFBottom-Up ApproachWorks only when there is n

24、o interest expenseOCF = NI + depreciationTop-Down ApproachOCF = Sales Costs TaxesDont subtract non-cash deductionsTax Shield ApproachOCF = (Sales Costs)(1 T) + Depreciation*T8.5 Investments of Unequal LivesThere are times when application of the NPV rule can lead to the wrong decision. Consider a fa

25、ctory that must have an air cleaner that is mandated by law. There are two choices:The “Cadillac cleaner” costs $4,000 today, has annual operating costs of $100, and lasts 10 years.The “Cheapskate cleaner” costs $1,000 today, has annual operating costs of $500, and lasts 5 years.Assuming a 10% disco

26、unt rate, which one should we choose?Investments of Unequal LivesAt first glance, the Cheapskate cleaner has a higher NPV.101004,614.46 4,000CF1F1CF0INPV1055002,895.391,000CF1F1CF0INPV10Cadillac Air CleanerCheapskate Air CleanerInvestments of Unequal LivesThis overlooks the fact that the Cadillac cl

27、eaner lasts twice as long.When we incorporate that, the Cadillac cleaner is actually cheaper (i.e., has a higher NPV).Investments of Unequal LivesReplacement ChainRepeat projects until they begin and end at the same time.Compute NPV for the “repeated projects.”The Equivalent Annual Cost MethodReplac

28、ement Chain ApproachThe Cadillac cleaner time line of cash flows:-$4,000 100 -100 -100 -100 -100 -100 -100 -100 -100 -1000 1 2 3 4 5 6 7 8 9 10-$1,000 500 -500 -500 -500 -1,500 -500 -500 -500 -500 -5000 1 2 3 4 5 6 7 8 9 10The Cheapskate cleaner time line of cash flows over ten years:Replacement Chain Approach101004,6144,000CF1F1CF0INPV1045004,6931,000CF1F1CF0INPV10Cadil