成本预算英文版课件

TwodecisionsMakeorbuyComparing_____with______ActivityanalysisUseoffacilitiesStrategicissusesJointproductprocessfurtherComparingsalevalue____and____theprocessTwocostsOpportunitycostSunkcost1CapitalBudgetingChapter11

Long-Term(Capital)AssetsCapitalassetsareequipmentorfacilitiesthatprovideservicestotheorganizationformorethanonefiscalperiod.Capitalassetscreatethesecapacity-relatedcosts3NeedtoControlCapitalAssetsOrganizationshavedevelopedspecifictoolstocontroltheacquisitionanduseoflong-termassetsbecause:Organizationsareusuallycommittedtolong-term

assetsforanextendedtime,creatingthepotentialforExcesscapacitythatcreatesexcesscostsScarcecapacitythatcreateslostopportunitiesTheamountofmoneycommittedtotheacquisitionofcapitalassetsisusuallyquitelargeThelong-termnatureofcapitalassetscreatestechnologicalriskReduceanorganization’sflexibility4MeaningofCapitalBudgetingCapitalbudgetingcanbedefinedastheprocessofanalyzing,evaluating,anddecidingwhetherresourcesshouldbeallocatedtoaprojectornot.

Capitalbudgetinghasthreephases:Identifyingpotentialinvestments,Choosingwhichinvestmentstomake,andFollow-upmonitoringoftheinvestments.56TypesofCapitalBudgetingDecisionsShouldweaddanewproducttoourexistingproductline?Shouldweexpandintoanewmarket?Shouldwereplaceourexistingmachinery?ShouldwebuyfullyautomaticorsemiautomaticmachineryWheretolocatemanufacturingfacility?7InvestmentandReturnInvestmentandreturnformthefoundationofcapitalbudgetinganalysis,whichfocusesonwhethertheexpectedincreasedcashflows(return)willjustifytheinvestmentinthelong-termassetInvestmentisthemonetaryvalueoftheassetstheorganizationgivesuptoacquirealong-termassetwhichareoftencalledcapitaloutlays.Returnistheincreasedfuturecashinflowsattributabletothelong-termasset8Obviously,$1,000today.Moneyreceivedsoonerratherthanlaterallowsonetousethefundsforinvestmentorconsumptionpurposes.ThisconceptisreferredtoastheTIMEVALUEOFMONEY!!TheTimeValueofMoneyWhichwouldyouratherhave--$1,000todayor$1,000in5years?

9TimeValueofMoney

Adollartodayisworthmorethanadollarayearfromnowsinceadollarreceivedtodaycanbeinvested,yieldingmorethanadollarayearfromnow.10TimeValueofMoney(1of2)Timevalueofmoney(TVM)isacentralconceptincapitalbudgetingInmakinginvestmentdecisions,theproblemisthatinvestmentcashispaidoutnow,butthecashreturnisreceivedinthefutureWeneedanequivalentbasistocomparethecashflowsthatoccuratdifferentpointsintime11TimeValueofMoney(2of2)Thecriticalideaunderlyingcapitalbudgetingis:Amountsofmoneyspentorreceivedatdifferentperiodsoftimemustbeconvertedintotheirvalueonacommondateinordertobecompared12SomeStandardNotationForsimplicity,thefollowingnotationisused:Abbr.MeaningnFVPVarNumberofperiodsconsideredintheinvestmentanalysis;commonperiodlengthsareamonth,aquarter,orayearFuturevalue,orendingvalue,oftheinvestmentnperiodsfromnowPresentvalue,orthevalueatthecurrentmomentintime,ofanamounttobereceivednperiodsfromnowAnnuity,orequalamount,receivedorpaidattheendofeachperiodfornperiodsRateofreturnrequired,orexpected,fromaninvestmentopportunity;therateofinterestearnedonaninvestment13TypesofInterestCompoundInterestInterestpaid(earned)onanypreviousinterestearned,aswellasontheprincipalborrowed(lent).SimpleInterestInterestpaid(earned)ononlytheoriginalamount,orprincipalborrowed(lent).SIn

=P0(1+i×n)CIn =P0(1+i)n14PresentValueAnalystscallafuturecashflow’svalueattimezeroitspresentvalueTheprocessofcomputingpresentvalueiscalleddiscountingWecanrearrangetheFVformulatocomputethepresentvalue:FV=PVx(1+r)nPV=FV/(1+r)nor

PV=FVx(1+r)-nMethodssimilartothosedescribedearliermaybeusedtocomputethisvalueCalculator,tables,orspreadsheetsoftware15Assumethatyouneedtohaveexactly$4,000

saved10yearsfromnow.Howmuchmustyoudeposittodayinanaccountthatpays6%interest,compoundedannually,sothatyoureachyourgoalof$4,000?

0510$4,0006%PV0PresentValue (Graphic)16

PV0=FV/(1+i)10 =$4,000

/(1.06)10 =$2,233.58PresentValue (Formula)

0510$4,0006%PV017QuickCheck

Howmuchwouldyouhavetoputinthebanktodaytohave$100attheendoffiveyearsiftheinterestrateis10%?PVorFV?Table:____a.$62.10b.$56.70c.$90.90d.$51.9018

Howmuchwouldyouhavetoputinthebanktodaytohave$100attheendoffiveyearsiftheinterestrateis10%?a.$62.10b.$56.70c.$90.90d.$51.90QuickCheck$1000.621=$62.1019

PRESENTVALUEYear 5% 10% 15%1 .952 .909 .8702 .907 .826 .7565 .784 .621 .49710 .614 .386 .24720 .377 .149 .061PRESENTVALUEOF$120

PRESENTVALUEYear 5% 10% 15%1 .952 .909 .8702 .907 .826 .7565 .784 .621 .49710 .614 .386 .24720 .377 .149 .061PRESENTVALUEOF$1Afixedamountofcashtobereceivedatsomefuturetimebecomelessvaluableasinterestrateincreaseandthetimeperiodincreased21AnnuitiesAnAnnuityrepresentsaseriesofequalpayments(orreceipts)occurringoveraspecifiednumberofequidistantperiods.OrdinaryAnnuity:Paymentsorreceiptsoccurattheendofeachperiod.AnnuityDue:Paymentsorreceiptsoccuratthe beginningofeachperiod.22ExamplesofAnnuities

StudentLoanPaymentsCarLoanPaymentsMortgagePaymentsRetirementSavings23PartsofanAnnuity0123

$100$100$100(OrdinaryAnnuity)EndofPeriod1EndofPeriod2TodayEqualCashFlowsEach1PeriodApartEndofPeriod324

PVAn =R(PVIFAi%,n) PVA3 =$1,000(PVIFA7%,3) =$1,000(2.624)=$2,624ValuationUsingTableIV25ApproachestoCapitalBudgetingOrganizationshavedevelopedmanyapproachestocapitalbudgetingfiveapproachesarediscussedhere:PaybackAccountingrateofreturnNetpresentvalueInternalrateofreturnProfitabilityindexDCFfocusonexpectedcashflowsandTVM26NPV: SumofthePVsofinflowsandoutflows.CostoftenisCF0andisnegative.NetPresentValue2728NetPresentValue(1of4)Thestepsusedtocomputeaninvestment’snetpresentvalueareasfollows:Step1: ChoosetheappropriateperiodlengthtoevaluatetheinvestmentproposalTheperiodlengthdependsontheperiodicityoftheinvestment’scashflowsThemostcommonperiodusedinpracticeisoneyearStep2:Identifytheorganization’scostofcapital,andconvertittoanappropriaterateofreturnfortheperiodlengthchoseninstep129CostofCapitalThecostofcapitalistheinterestrateusedfordiscountingfuturecashflowsAlsoknownastherisk-adjusteddiscountrateThecostofcapitalisthereturntheorganizationmustearnonitsinvestmenttomeetitsinvestors’returnrequirementsTheorganization’scostofcapitalreflects:Theamountandcostofdebtandequityinitsfinancialstructure(WACC)Thefinancialmarket’sperceptionofthefinancialriskoftheorganization’sactivities30NetPresentValue(2of4)Step3:Identifytheincrementalcashflow

ineachperiodoftheproject’slife.Step4:Computethepresentvalueofeachperiod’scashflowusingtheorganization’scostofcapitalforthediscountrateStep5:Sumthepresentvaluesofalltheperiodiccashinflowsandoutflowstodeterminetheinvestmentproject’snetpresentvalueStep6:Iftheproject’snetpresentvalueispositive,theprojectisacceptablefromaneconomicperspective31TypicalCashOutflowsRepairsandmaintenanceIncrementaloperatingcostsInitialinvestmentWorkingcapital32TypicalCashInflowsReductionofcostsSalvagevalueIncrementalrevenuesReleaseofworkingcapital33Generaldecisionrule...TheNetPresentValueMethod34TheNetPresentValue(NPV)Criterion-ExampleAcompanycanpurchaseamachinefor$2200.Themachinehasaproductivelifeofthreeyears.Itwillgeneratenetcashflowsof$770inthefirstyear,$968inthesecond,and$1331inthethird.Ifthefirmdoesnotbuythismachine,itcaninvestitsmoneyelsewhereandearnareturnof10%.Shouldthemachinebebought?35TheNetPresentValue(NPV)Criterion-ExampleSo,wecalculatetheNPVusingthePVofestimatedcashflows.36TheNetPresentValue(NPV)Criterion-ExampleInthiscase,theNPVispositive.Thismeanstheinvestmentshouldbeundertaken.37QuickCheckDataDennyAssociateshasbeenofferedafour-yearcontracttosupplythecomputingrequirementsforalocalbank.Theworkingcapitalwouldbereleasedattheendofthecontract.DennyAssociatesrequiresa14%return.38QuickCheck

Whatisthenetpresentvalueofthecontractwiththelocalbank?a.$150,000b.$28,230c.$92,340d.$132,91639

Whatisthenetpresentvalueofthecontractwiththelocalbank?a.$150,000b.$28,230c.$92,340d.$132,916QuickCheck40ComparisonofTwoProjectsTwocommonmethodsforcomparingalternativesare:TotalprojectapproachDifferentialapproach41TotalProjectApproachThetotalprojectapproachcomputesthetotalimpactoncashflowsforeachalternativeandthenconvertsthesetotalcashflowstotheirpresentvalues.ThealternativewiththelargestNPVoftotalcashflowsisbest.42DifferentialApproachThedifferentialapproachcomputesthedifferencesincashflowsbetweenalternativesandthenconvertsthesedifferencestotheirpresentvalues.Thismethodcannotbeusedtocomparemorethantwoalternatives.4344GoodAttributesoftheNPVRule1.Usescashflows2.UsesALLcashflowsoftheproject3.DiscountsALLcashflowsproperlyReinvestmentassumption:theNPVruleassumesthatallcashflowscanbereinvestedatthediscountrate.45

“Salesisvanity,profitis

necessary,butcashisking”46SoundsgoodMysaleshavegrownby5%overthelastfewyearsMybusinessmakesaprofitof£xmperyear–thebanksandinvestorsneedthisBut….47CashControlCashisthelifebloodofanybusiness.ItisessentialtoenablethebusinesstocarryoutdaytodaytransactionsAnorganisationcanmakeaprofitbutwithoutasustainableflowcanbeindangerofgoingintoliquidationAbusinessshouldcontinuetodrivecashgenerationinordertosustainbusinessoperationsandtofundfuturegrowthPoorcashflowlimitsopportunitiesand/oroptions,canleavelittleroomtorespondtothreatsCashisoftenthefirstsignofdeteriorationandsendsignalstostakeholders48EffectofTaxesTheeffectoftaxesoncapitalbudgetingistwo-fold:Organizationsmustpaytaxesonanynetbenefitsprovidedbytheinvestments.Organizationscanusethedepreciationassociatedwithacapitalinvestmenttoreduceincomeandoffsetsomeoftheirtaxes.So,analysisofcapitalbudgetingrequiresconvertingallpretaxcashflowstoafter-taxcashflows.49EffectsofDepreciationDeductionsDepreciationexpenseisanoncashexpenseandsoisignoredforcapitalbudgeting,exceptthatitisanexpensefortaxpurposesandsowillprovideacashinflowfromincometaxsavings(depreciationtaxshields)TAX50weshowhowcashflowsarerelatedtoaccountingnumbersandtaxes.Definethenetcashflowgeneratedbycertainassetsas:NetCashFlow=CashInflow-CashOutflow=Revenue-Expenses-CapitalExpenditure-TaxesTheincometaxpaidisdeterminedby:Taxes=t*(Revenue-Expenses-Depreciation)NetCashflow=(1-t)*(Revenue–Expenses)+t*Depreciation515253JoshuaManufacturingCompany(JMC)isconsideringbuyingsomenewequipmentthatwouldallowforincreasedsalesofitsproduct.Theincrementalimpactoftheproposed$280,000investmentisshownbelowusingstraight-linedepreciationandanexpectedusefullifeoffouryearsfortheequipment.Thecompanyhasaminimumdesiredrateofreturnof14%. Revenues $420,000 Nondepreciationexpenses $240,000 Depreciation 70,000 Totalexpenses $310,000 Taxableincome $110,000 Incometax(40%) 44,000 NetIncome $66,000541. Theannualcashinflowsexpectedfromtheprojectare:a.$80,000 b.$68,000 c.$136,000 d.$108,0002. Thepresentvalueofthetaxsavingsfromstraight-linedepreciationis:a.$100,000b.$81,584 c.$28,274 d.$03. TheNPVoftheinvestmentusingstraight-linedepreciationis:a.($280,000)b.($1,868.40) c.$396,264 d.$116,264.55

1.[c]

Theeasiestwaytocomputethecashflowsgeneratedbytheinvestmentistoaddthedepreciationbacktothenetincome.Inthiscase,$70,000+$68,000=$136,000.Alternatively,onecouldaddtheafter-taxcashflowsfromoperationstothetaxsavingsresultingfromthedepreciationexpense.Here,$108,000[($420,000-$240,000)x(1-.40)]+$28,000[$70,000x.40]alsogives$136,000intotalafter-taxcashflows.562.[b]

Theannualtaxsavingsfromdepreciationare$28,000[$70,000x.40].Thepresentvalueofthesavingsiscomputedbymultiplyingthe$28,000bythepresentvaluefactorforanannuityforfouryearsat14%of2.9137.Theresultis$81,584.57InflationeffectsInflationThedeclineinthegeneralpurchasingpowerofthepowerofthemonetaryunit.ConsistencyConsistenttreatmentoftheminimumdesiredrateofreturnandthepredictedcashflows.58Othermethodsofanalysis

59InternalRateofReturnTheinternalrateofreturn(IRR)istheactualrateofreturnexpectedfromaninvestmentTheIRRisthediscountratethatmakestheinvestment’snetpresentvalueequaltozeroIfaninvestment’sNPVispositive,thenitsIRRexceedsitscostofcapitalIfaninvestment’sNPVisnegative,thenit’sIRRislessthanitscostofcapital60CalculatingtheIRRLetaproject’scashflowbeC1,C2,C3,…,CN.LettheinitialcostoftheprojectbeC0.Then,theIRRisrinthefollowingequation:61CalculatingtheIRRTwocasesLevelcashinflows(thesameamounteachyear)uneveninflows62InternalRateofReturnMethodDeckerCompanycanpurchaseanewmachineatacostof$104,320thatwillsave$20,000peryearincashoperatingcosts.Themachinehasa10-yearlife.63InternalRateofReturnMethodFuturecashflowsarethesameeveryyearinthisexample,sowecancalculatetheinternalrateofreturnasfollows:

InvestmentrequiredNetannualcashflowsPVfactorforthe

internalrateofreturn=$104,320

$20,000=5.216Investment/inflowratio64InternalRateofReturnMethodFindthe10-periodrow,moveacrossuntilyoufindthefactor5.216.Lookatthetopofthecolumnandyoufindarateof14%.Usingthepresentvalueofanannuityof$1table...65UnevencashinflowsConsiderthefollowingproject:0123$50$100$150-$20066CalculatingtheIRRTheequationcannotbesolvedforr.Wecanuseatrialanderrorapproach.Orwecoulduse“solver”or“goalseek”inExcel.67TheNPVPayoffProfileforThisExampleIfwegraphNPVversusdiscountrate,wecanseetheIRRasthex-axisintercept.IRR=19.44%68TheIRRDecisionRuleMinimumAcceptanceCriteriaforscreeningproblem:AcceptiftheIRRexceedstherequiredreturn.RankingCriteriaforpreferenceproblemsSelectalternativewiththehighestIRR69ThePaybackMethodThepaybackperiodisthelengthoftimethatittakesforaprojecttorecoveritsinitialcostoutofthecashreceiptsthatitgenerates.

PaybackPeriod=numberofyearstorecoverinitialcosts70Whenthenetannualcashinflowisthesameeachyear,thisformulacanbeusedtocomputethepaybackperiod:Whenthenetannualcashinflowisnotconstantfromyeartoyear,thepaybackperiodisdeterminedbyaddingupthecashinflowsexpectedinsuccessiveyearsuntilthetotalisequaltotheoriginaloutlay.ThePaybackMethodPaybackperiod=

Investmentrequired

Netannualcashinflow71DecisioncriterionThepaybackmethodassumesthatriskistime-related:thelongertheperiod,thegreaterthechanceoffailure,so:Whenprojectsaremutuallyexclusive,accepttheprojectwithshortestpaybackperiod.Oraccepttheproposalwhichpaybackperiodislessthetargetperiod(whichisdeterminedbycompany’spolicy).72ThePaybackMethod

ManagementatTheDailyGrindwantstoinstallanespressobarinitsrestaurant.Theespressobar:Costs$140,000andhasa10-yearlife.Willgeneratenetannualcashinflowsof$35,000.Managementrequiresapaybackperiodof5yearsorlessonallinvestments.Whatisthepaybackperiodfortheespressobar?73ThePaybackMethodPaybackperiod=

InvestmentrequiredNetannualcashinflowPaybackperiod=$140,000$35,000Paybackperiod=4.0yearsAccordingtothecompany’scriterion,managementwouldinvestintheespressobarbecauseitspaybackperiodislessthan5years.74QuickCheck

Considerthefollowingtwoinvestments:

ProjectX

ProjectY Initialinvestment $100,00 $100,000 Year1cashinflow $60,000 $60,000 Year2cashinflow $40,000 $35,000 Year3-10cashinflows $0 $25,000

Whichprojecthastheshortestpaybackperiod?a.ProjectXb.ProjectYc.Cannotbedetermined75

Considerthefollowingtwoinvestments:

ProjectX

ProjectY Initialinvestment $100,00 $100,000 Year1cashinflow $60,000 $60,000 Year2cashinflow $40,000 $35,000 Year3-10cashinflows $0 $25,000

Whichprojecthastheshortestpaybackperiod?a.ProjectXb.ProjectYc.CannotbedeterminedQuickCheckProjectXhasapaybackperiodof2years.ProjectYhasapaybackperiodofslightlymorethan2years.Whichprojectdoyouthinkisbetter?76StrengthsofPayback:1. Providesanindicationofaproject’sriskandliquidity.2. Easytocalculateandunderstand.WeaknessesofPayback:1. IgnorestheTVM.2. IgnoresCFsoccurringafterthepaybackperiod.EvaluationofthePaybackMethod77

EvaluationofthePaybackMethod

Itisthemethodmostwidelyusedinpracticeandparticularlyusefulapproachfor:RankingprojectswhereafirmfacesliquidityconstraintsandrequireafastrepaymentofinvestmentAsituationwhereriskyinvestmentsaremadeinuncertainmarketsthataresubjecttofastdesignandproductchanges.preliminaryscreeningofmanyproposalsisnecessary;PaybackmethodshouldbeusedinconjunctionwiththeNPVmethod.78AccountingRateofReturnMethodDoesnotfocusoncashflows--ratheritfocusesonaccountingincome.Thefollowingformulaisusedtocalculatethesimplerateofreturn:accountingrateofreturn=

AverageincomeAverageinvestment79EvaluationofaccountingrateofreturnFocusonaccountingincomeandignoretheTVM.Itisaimprovementoverthepaybackmethodinthatitconsidersincomeinallperiods80Despitetheconceptualsuperiorityofmethodsthatinvolvediscounting,surveysshowthatthepaybackandaccountingre