财务管理基础 外文版4

1、Capital BUDGETS Analysis-數量- Dr. FRANK HENRY WADE ，CPA，CIA，CMA，CISAPutian University, China1ST FINANCING1. Trade Credit: From Suppliers2. Bank Financing 3. BA Bank acceptance: Holder 3. Commercial Paper: ST loans unsecured4. Letter of Credit: 3rd party pays 2nd party for 1st, when documents, conditi

2、ons are met 2SHORT TERM Financing Chapter 111. Trade Credit as Financing: Pay bills on last day of period.2. “Leaning on the trade3.Security Collateral Pg 2934. UCC-All states the same5. Inventory Backed LoansA) Floating Lein-UCC pledge Inventory in general, not IDedB) Chattel Mortg:Identifiable sec

3、urity on personal property (Not real estate)3C) Trust Reciept: ID Inventory and the sale funds go to holderD) Warehouse Reciept-Terminal: Lender stores goods in public wharehouse secured by paper, negotiable or non-negotiableE) Warehouse Reciept-Field: Same as D but in a private warehouse, inventory

4、 separate from lenders inventory (under control of warehouse Controller)4F)Factoring: Selling of Receviables to a Bank , without recourse.Factoring costs come out of discount.5COMPARISON OF ST FINANCING: Pg 3056Annualize Cost of Not taking Discount% discount/100-% discount x 365/pymt date-discount p

5、eriodEx 2/10 net/30; 2/98x 365/20=.3727Maintaining Demand DepositsPg 291Int Paid + Fees Paid/Usable fundsx 365/number of days loan o/s84 Pcs of INFO: PI, Years, Investmt, Hurdle rateAn Investment of X has a PI of Yfor Z years and a hurdle rate of 10%What is the NPV?What is it PV of Gross future annu

6、ity flows?What is its annual annuity flows ?What is its IRR?What is its Payback period9Step1. PI= Net Present Value of Flows/Investment Required=PI. Step 2. Npv of flows + Initial Investment= PV of future annuity (Gross Flows)Step 3 PV of future annuity /PV FACTOR of Future Annuity=yearly annuitySte

7、p 4. Initial Investment/Annual flows=PV Factor of IRR(Look on Table years to get % RateStep 5:Payback= Initial Investment/Gross Annual Flows 10IRRPg 325, Uneven Cash Flows1. Find IRR 10years reciving $61,450 initial receiving 10k each year ?A) 61,450/10,000=6.1452. Find IRR 10 years initial 60,000,

8、receiving 11k each year B) 60k/11k around 12.3%11Project A is 83,655 initial investment Year 1(15,000）=。2 （20,000）=。3 （25,000）=。4 （30,000）=。5（35,000）=Project 5 years, 15K each year 52,755 Initial Investmt12IRRPg 325Project A is 3,625 NPV,13% 80,000.885（15,000）=13,275。783 （20,000）=15,660。693 （25,000）

9、=17,325。613 （30,000）=18,390。543（35,000）=19,005 83,655 NPV 3,625Project B , 13% 5 years, 15K each year 50,000Less PV of Annuity 3.517(15,000)=52,755NPV 2,7554.413Comput IRR with Uneven FlowsIRRProject A IRR is 14.7%. This was found with a great deal of trial and error and interpolating the interest r

10、ates.The following are the tvmf for 14.7% in each year.872（15,000）=13,080.760 （20,000）=15,200.663 （25,000）=15,575.578 （30,000）=17,340.504（35,000）=17,640 79,835-80,000 = NPV 0Project B IRR is 15%50,000/15,000=(3.333) 3.333 is TVMF， 。14PAYBACK PERIOD/Uneven flows Pg 3241. 2.66 is answerProblem Pg 346

11、ID15Net Present Value Uneven Flows Pg 32616Profitability IndexPI or Benefit Cost Ratio= Present Value of Future Cash Flows/Initial Investment17The Net Present Value Method18Typical Cash OutflowsRepairs andmaintenanceIncrementaloperatingcostsInitialinvestmentWorkingcapital19Typical Cash InflowsReduct

12、ionof costsSalvagevalueIncrementalrevenuesRelease ofworkingcapital20Recovery of the Original InvestmentCarver Hospital is considering the purchase of an attachment for its X-ray machine. No investments are to be made unless they have an annual return of at least 10%.Will we be allowed to invest in t

13、he attachment 21NPV: Answer Indifferent PV of annuity in 4 years = $3,170 what it costs nowThe present value of a $1000 annuity 10% in 4 yeares is 3.170 on page 678.22Present valueof an annuityof $1 tableRecovery of the Original Investment23Recovery of the Original InvestmentThis implies that the ca

14、sh inflows are sufficient to recover the $3,170 initial investment (therefore depreciation is unnecessary) and to provide exactly a 10% return on the investment.24The Net Present Value MethodTo determine net present value we . . .Calculate the present value of cash inflows,Calculate the present valu

15、e of cash outflows,Subtract the present value of the outflows from the present value of the inflows.25NPV METHODAll the inflows, outflows must be identified and NPV factor must be applied.26Accept the contract because the project has a positive net present value.The Net Present Value Method27Project

16、 Profitability IndexNet Present Value of Flows/Investment RequiredManner to rank investments in NPV method28IRRThe internal rate of return is the rate of return promised by an investment project over its useful life. It is computed by finding the discount rate that will cause the net present value o

17、f a project to be zero.29IRR, HURDLE RATE of Return Must be IdentifiedIt works very well if a projects cash flows are identical every year. If the annual cash flows are not identical, a trial and error process must be used to find the internal rate of return.When using the internal rate of return, t

18、he cost of capital acts as a hurdle rate that a project must clear for acceptance30IRR; the initial investment is $104,320 & $20,000/yr for 10 yrsFuture cash flows are the same every year in this example, so we can calculate the internal rate of return as follows: Investment required Annual net cash

19、 flowsPV factor for theinternal rate of return= $104, 320 $20,000= 5.21631NPV of Annuity Tables Pg 678What is the rate of interest for 5.216 10 years?YEARS 14% 15%9 4.946 4.77210 5.216 5.01911 5.453 5.23432Internal Rate of Return MethodThe higher the internal rate of return, the more desirable the p

20、roject.When using the internal rate of return method to rank competing investment projects, the preference rule is:33The Payback MethodThe payback period is the length of time that it takes for a project to recover its initial cost out of the cash receipts that it generates. Payback period = Investm

21、ent required Annual net cash inflow34When the annual net cash inflow is the same each year, this formula can be used to compute the payback period. The payback answers the question, when will you receive your investment back?35The Payback Method Management at The Daily Grind wants to install an espr

22、esso bar in its restaurant. The espresso bar:Costs $140,000 and has a 10-year life.Will generate annual net cash inflows of $35,000. Management requires a payback period of 5 years or less on all investments.What is the payback period for the espresso bar?36The Payback MethodPayback period = Investm

23、ent required Annual net cash inflowPayback period = $140,000 $35,000Payback period = 4.0 yearsAccording to the companys criterion, management would invest in the espresso bar because its payback period is less than 5 years.37Evaluation of the Payback MethodIgnores the time valueof money.Ignores cash

24、flows after the paybackperiod.Short-comingsof the paybackperiod.38Simple Rate of Return MethodDoes not focus on cash flows - rather it focuses on accounting net operating income.Simple rateof return=Annual incremental net operating income -Initial investment*Should be reduced by any salvage from the

25、 sale of the old equipment39IRRThe following formula is used to calculate the simple rate of return which focuses on Net Income not cash flow.NPV is used to discount bonds sold by a firm. What is the current mkt value of a 12% bond which you receive $100 in 2 years?40Present Value An Example$100 0.7

26、97 = $79.70 present valuePresent value factor of $1 for 2 periods at 12%.41AFTER TAX BENEFITS OF A TAX DEDUCTABLE EXPENSEYou apply the reciprocal of the tax rate against the expense to see the alternative savings the expenditure would have instead of letting the revenue to to stockholders as dividen

27、ds.Of the 60k, if it was issued as dividends you pay 18K in taxes. As a deductable expense, you get or earn $42k in benefits instead.42After-tax Cost An ExampleAssume a company with a 30% tax rate is contemplating investing in a training program that will cost $60,000 per year.We can use this equati

28、on to determine that the after-tax cost of the training program is $42,000.43Depreciation has After tax BenefitDepreciation, as a deductable expense has an after tax benefit. You only apply the tax rate to Depreciation to get tax benefit.In Tax deductable expenditures like assets, you apply reciproc

29、al of tax rate (1-tax rate) to see funds available for use.44Depreciation Tax Shield An ExampleAssume a company has annual cash sales and cash operating expenses of $500,000 and $310,000, respectively; a depreciable asset, with no salvage value, on which the annual straight-line depreciation expense

30、 is $90,000; and a 30% tax rate.The depreciation tax shield is $27,000. 45 Company Example uses Tax Effect & NPVStep Three: Translate the relevant cash flows to after-tax cash flows as shown.46SUMMARY of Tax Effect, Before Apply NPV-Intial cost or Investment (no Tax effect; these are outlays)+Deprec

31、iation (apply tax rate to get benefit /savings of Tax Shield)(Tax Savings)+Incremental revenue (1-tax rate) to get after-tax cash inflow-Incremental expense (1-tax rate) to get after-tax cash cost47HOMEWORK CHAPTER 1414-16 , 14-17, 14-2014-2214-2314-2714-C-448QUESTION4 Pcs of INFO: PI, Years, Invest

32、mt, Hurdle rateAn Investment of X has a PI of Yfor Z years and a hurdle rate of 10%What is the NPV?What is it PV of Gross future annuity flows?What is its annual annuity flows ?What is its IRR?What is its Payback period49A 160k 7.275 B 135k 12.311 C 100k 7.35 D 175k 3.217Step1. PI= Net Present Value

33、 of Flows/Investment Required=PI. Step 2. Npv of flows + Initial Investment= PV of future annuity (Gross Flows)Step 3 PV of future annuity /PV FACTOR of Future Annuity=yearly annuityStep 4. Initial Investment/Annual flows=PV Factor of IRR(Look on Table years to get % RateStep 5:Payback= Initial Inve

34、stment/Gross Annual Flows 5014-16+ 14-17A 160k 44,323 7 18% .275 PI =c, NPV=a, IRR=dB 135k 42k 12 16% .311C 100k 35,035 7 20% .35D 175k 38,136 3 22% .217Net Present Value of Flows/Investment Required=PI. Npv of flows + Initial Investment= PV of future annuity (Gross Flows)NPV=PV of future annuity-In

35、itial InvestmentPV At 10% 7years;(204,323/ 4.868)= $41,972 annual flow; PV of Gross Flows X PV Factor 7years 10%=Gross yearly flows. Gross yearly flows x PV Factor=Present Value of annual gross flowsInitial Investment/Gross yearly flows=PV Factor of IRR(Look on Table years to get % RateInvestment re

36、quired Annual net cash flowsPayback= Initial Investment/Gross Annual Flows51Ans AA 160k 7.275 PI= NPV/Investment; 44,323/160=.27544,323+ 160=204,323At 10% 7years;(204,323/ 4.868)= $41,972 annual flowA 160k/41.972=3.812(7yr18%), IRRPayback; 160k/41.972=3.812 years52Ans BB 135k 12 .311,PI= NPV/Investm

37、ent; 42,000/135=.31142k+135=177 (PV of an annuity)At 10% 12years; (177/6.814)=25,976 annual flowA 135/25.976=5.197(12yr16%),IRR135/25,976=5.197 years53Ans BB 135k 12 16% .311,1.PI= NPV/Investment; 42,000/135=.31142+135=1772.At 12years 10% ;(177/6.814)=25,9763.135/25.976=5.197(12yr16%),IRRPI= NPV/Inv

38、estment; 42,000/135=.311At 10% 12years; (177/6.814)=25,976 annual flowA 135/25.976=5.197(12yr16%),IRR4.135/25,976=5.197 years54Ans CC 100k 35,035 7 20% .35PI= NPV/Investment; 35,035/100=.3535,035 + 100=135,035At 10% 7years;(135,035/ 4.868)= $27,739.32 annual flowA 100k/27.739=3.605(7yr20%), IRRPayba

39、ck 100k/27.739=3.605=3.6 years55Ans CC 100k ,7 20% .351.PI= NPV/Investment; 35,035/100=.352.At 10% 7years;(135,035/ 4.868)= $27,739.32 annual flow3. A 100k/27.739=3.605(7yr20%), IRR4. 100k/27.739=3.6 yearsA 100k/27.739=3.605(7yr20%), IRRAt 10% 7years;(135,035/ 4.868)= $27,739.32 annual flowA 100k/27

40、.739=3.6 payback56Ans DD 175k 3 yr ,10%, .2171.1.PI= NPV/Investment; 38,136/175=.217 38,136 + 175=213,1362.At 10% 3years;(213,136/ 2.487)= $85,700 annual3.A 175k/85,700=2.042(3yr22%), IRR4. 175k/85,700=2 paybackD 175k 38,136 3 22% .217At 10% 3years;(213,136/ 2.487)= $85,700 annual flowA 175k/85,700=

41、2.042(3yr22%), IRR57INVESTMENT QUESTIONA 160k 7 .277,B 135k 12 .311C 100k 7 .35,D 175k 3 .217An Investment of X has a PI of Yfor Z years and a hurdle rate of 10%What is its Gross annual annuity flows ?What is it PV of all future annuity flows?What is its IRR?What is its Payback period?5814-17, A 160

42、k 7 .277,B 135k 12 .311C 100k 7 .35D 175k 3 .217E 270 6 .2449F 450 3 .16215G 360 12 .2038H 480 6 .181859EE 270k 6 .2449Net Present Value of Flows/Investment Required=PI(66,140/270=.244966,140+270k=336.140At 10% 6years;(336,140/ 4.355)= $77,184 annual flowA 270k/77,184=3.498(5yr18%), IRR270k/77,184=3

43、.498 years60FF 450 3 .16215 Net Present Value of Flows/Investment Required=PI(72,970/450)=.1621572,970+450k=522,970At 10% 3years;(522,970/ 2.487)= $210,281 annual flowA 450k/210,281=2.140(3yr19%), IRR450k/210,281=2.1yearsF 450 3 .1621561G360 12 .2038Net Present Value of Flows/Investment Required=PI(

44、73,400/360)=.203873,400+360k=433,400At 10% 12years;(433,400/ 6.814)= $63,604 annual flowA 360k/63,604=5.66(12yr14%360k/63,604=5.66 years62Ans H480 6 .1818Net Present Value of Flows/Investment Required=PI 87,270/480k=.181887,270+480=567,270At 10% 6years;(567,270/4.355)= $130,257 annual flowA 480k/130

45、,257=3.685(6yr16%), IRR480k/130,257=3.685 years6314-18 NPV Analysis;20%Initial Invest ( 375K)PV of 4 yr annuity 120kx2.589 310.68Pv $1 in 3Yr(40kx.579) (23.16) Salv+WK PV$1 in 4yr .482(165k) 79.53Net Loss (7.950)6414-22ALT One 530k; land 50K, Building 480kDepreciation 16X25 years=400 +80=48012K Mortgage Pymt=(12% 8 years)4.968=(59,616)Gain on Building: 480-(18x12 mortgage pymts)=264x.183=48,31232k NI=32 (15 12% an