英語課件 UsingDiscounted Cash Flow Analysis toMakeInvestment Decisions

1、The McGraw-Hill Companies, Inc.,20017- 1Irwin/McGraw-HillIrwin/McGraw-HillChapter 7Fundamentals of Corporate FinanceThird EditionUsingDiscounted Cash Flow Analysis toMakeInvestment DecisionsBrealey Myers Marcusslides by Matthew WillIrwin/McGraw-HillThe McGraw-Hill Companies, Inc.,2001The McGraw-Hill

2、 Companies, Inc.,20017- 2Irwin/McGraw-HillTopics CoveredDiscounted Cash Flows, NetProfitsIncremental Cash FlowsTreatment of InflationSeparation of Investment & Financing DecisionsExample: Blooper IndustriesThe McGraw-Hill Companies, Inc.,20017- 3Irwin/McGraw-HillCash Flow vs. Accounting IncomeDi

3、scount actual cash flowsUsing accounting income, rather than cash flow, could lead to erroneous decisions.ExampleA project costs $2,000 and is expected to last 2 years, producing cash income of $1,500 and $500 respectively. The cost of the project can be depreciated at $1,000 per year. Given a 10% r

4、equired return, compare the NPV using cash flow to the NPV using accounting income.The McGraw-Hill Companies, Inc.,20017- 4Irwin/McGraw-HillYear 1Year 2Cash Income $1500 $ 500Depreciation-$1000-$1000Accounting Income+ 500- 500Accounting NPV =5001.10500110322( .)$41.Cash Flow vs. Accounting IncomeThe

5、 McGraw-Hill Companies, Inc.,20017- 5Irwin/McGraw-HillTodayYear 1Year 2Cash Income $1500 $ 500Project Cost-2000 Free Cash Flow-2000+1500+ 500Cash NPV =-20001.10 15001105001101423( .)( .)$223.Cash Flow vs. Accounting IncomeThe McGraw-Hill Companies, Inc.,20017- 6Irwin/McGraw-HillIncremental Cash Flow

6、sDiscount incremental cash flowsInclude All Indirect EffectsForget Sunk CostsInclude Opportunity CostsRecognize the Investment in Working CapitalBeware of Allocated Overhead CostsIncremental Cash Flowcash flow with projectcash flow without project=-The McGraw-Hill Companies, Inc.,20017- 7Irwin/McGra

7、w-HillIncremental Cash FlowsAsk yourself this questionWould the cash flow still exist if the project does not exist?If yes, do not include it in your analysis.If no, include it.The McGraw-Hill Companies, Inc.,20017- 8Irwin/McGraw-HillInflationBe consistent in how you handle inflation!Use nominal int

8、erest rates to discount nominal cash flows.Use real interest rates to discount real cash flows.You will get the same results, whether you use nominal or real figuresThe McGraw-Hill Companies, Inc.,20017- 9Irwin/McGraw-HillInflationExampleYou own a lease that will cost you $8,000 next year, increasin

9、g at 3% a year (the forecasted inflation rate) for 3 additional years (4 years total). If discount rates are 10% what is the present value cost of the lease?1 real interest rate =1+nominal interest rate1+inflation rateThe McGraw-Hill Companies, Inc.,20017- 10Irwin/McGraw-HillInflationExample - nomin

10、al figuresYearCash FlowPV 10%1800028000 x1.03=82408000 x1.03 =82408000 x1.03 =8487.20 80001.1023727273680992363765645970784299982401108487 20110874182110234.$26,.The McGraw-Hill Companies, Inc.,20017- 11Irwin/McGraw-HillInflationExample - real figuresYearCash FlowPV6.7961%1= 7766.992= 7766.99= 7766.

11、99= 7766.99 80001.037766.991.06882401.038487.201.038741.821.032347272736809923637656459707826429997766 991 0687766 991 0687766 991 068234.= $,.The McGraw-Hill Companies, Inc.,20017- 12Irwin/McGraw-HillSeparation of Investment & Financing DecisionsWhen valuing a project, ignore how the project is

12、 financed.Following the logic from incremental analysis ask yourself the following question: Is the project existence dependent on the financing? If no, you must separate financing and investment decisions.The McGraw-Hill Companies, Inc.,20017- 13Irwin/McGraw-HillBlooper IndustriesYear 0123456Cap In

13、vestWCChange in WCRevenuesExpensesDepreciationPretax Profit.Tax (35%)Profit1000015004 0754 2794 4934 7173039015002 5752042142251678303915000157501653817 36418 23310 000105001102511576121552 0002 0002 0002 0002 00030003250351337884 07810501137123013261427195021132,2832 4622 651(,000s)The McGraw-Hill

14、Companies, Inc.,20017- 14Irwin/McGraw-HillBlooper IndustriesCash Flow From Operations (,000s)Revenues-ExpensesDepreciation= Profit before tax.-Tax 35 %= Net profit+Depreciation= CF from operations1500010 0002 0003000105019502 0003950,or $3,950,000The McGraw-Hill Companies, Inc.,20017- 15Irwin/McGraw-HillBlooper Indust