公司理財英文版課件Chap010

1、Chapter 10Making Capital Investment DecisionsMcGraw-Hill/IrwinCopyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.1Key Concepts and SkillsUnderstand how to determine the relevant cash flows for various types of proposed investmentsUnderstand the various methods for computing operat

2、ing cash flowUnderstand how to set a bid price for a projectUnderstand how to evaluate the equivalent annual cost of a project10-22Chapter OutlineProject Cash Flows: A First LookIncremental Cash FlowsPro Forma Financial Statements and Project Cash FlowsMore about Project Cash FlowAlternative Definit

3、ions of Operating Cash FlowSome Special Cases of Discounted Cash Flow Analysis10-33Relevant Cash FlowsThe cash flows that should be included in a capital budgeting analysis are those that will only occur (or not occur) if the project is acceptedThese cash flows are called incremental cash flowsThe s

4、tand-alone principle allows us to analyze each project in isolation from the firm simply by focusing on incremental cash flows10-44Asking the Right QuestionYou should always ask yourself “Will this cash flow occur ONLY if we accept the project?”If the answer is “yes,” it should be included in the an

5、alysis because it is incrementalIf the answer is “no,” it should not be included in the analysis because it will occur anywayIf the answer is “part of it,” then we should include the part that occurs because of the project10-55Common Types of Cash FlowsSunk costs costs that have accrued in the pastO

6、pportunity costs costs of lost optionsSide effectsPositive side effects benefits to other projectsNegative side effects costs to other projectsChanges in net working capitalFinancing costsTaxes10-66Pro Forma Statements and Cash FlowCapital budgeting relies heavily on pro forma accounting statements,

7、 particularly income statementsComputing cash flows refresherOperating Cash Flow (OCF) = EBIT + depreciation taxesOCF = Net income + depreciation (when there is no interest expense)Cash Flow From Assets (CFFA) = OCF net capital spending (NCS) changes in NWC10-77Table 10.1 Pro Forma Income StatementS

8、ales (50,000 units at $4.00/unit)$200,000Variable Costs ($2.50/unit)125,000Gross profit$ 75,000Fixed costs12,000Depreciation ($90,000 / 3)30,000EBIT$ 33,000Taxes (34%)11,220Net Income$ 21,78010-88Table 10.2 Projected Capital RequirementsYear0123NWC$20,000$20,000$20,000$20,000NFA 90,000 60,000 30,000

9、 0Total$110,000$80,000$50,000$20,00010-99Table 10.5 Projected Total Cash FlowsYear0123OCF$51,780$51,780$51,780Change in NWC-$20,00020,000NCS-$90,000 CFFA-$110,00$51,780$51,780$71,78010-1010Making The DecisionNow that we have the cash flows, we can apply the techniques that we learned in Chapter 9Ent

10、er the cash flows into the calculator and compute NPV and IRRCF0 = -110,000; C01 = 51,780; F01 = 2; C02 = 71,780; F02 = 1NPV; I = 20; CPT NPV = 10,648CPT IRR = 25.8%Should we accept or reject the project?10-1111More on NWCWhy do we have to consider changes in NWC separately?GAAP requires that sales

11、be recorded on the income statement when made, not when cash is receivedGAAP also requires that we record cost of goods sold when the corresponding sales are made, whether we have actually paid our suppliers yetFinally, we have to buy inventory to support sales, although we havent collected cash yet

12、10-1212DepreciationThe depreciation expense used for capital budgeting should be the depreciation schedule required by the IRS for tax purposesDepreciation itself is a non-cash expense; consequently, it is only relevant because it affects taxesDepreciation tax shield = DTD = depreciation expenseT =

13、marginal tax rate10-1313Computing DepreciationStraight-line depreciationD = (Initial cost salvage) / number of yearsVery few assets are depreciated straight-line for tax purposesMACRSNeed to know which asset class is appropriate for tax purposesMultiply percentage given in table by the initial costD

14、epreciate to zeroMid-year convention10-1414After-tax SalvageIf the salvage value is different from the book value of the asset, then there is a tax effectBook value = initial cost accumulated depreciationAfter-tax salvage = salvage T(salvage book value)10-1515Example: Depreciation and After-tax Salv

15、ageYou purchase equipment for $100,000, and it costs $10,000 to have it delivered and installed. Based on past information, you believe that you can sell the equipment for $17,000 when you are done with it in 6 years. The companys marginal tax rate is 40%. What is the depreciation expense each year

16、and the after-tax salvage in year 6 for each of the following situations?10-1616Example: Straight-lineSuppose the appropriate depreciation schedule is straight-lineD = (110,000 17,000) / 6 = 15,500 every year for 6 yearsBV in year 6 = 110,000 6(15,500) = 17,000After-tax salvage = 17,000 - .4(17,000

17、17,000) = 17,00010-1717Example: Three-year MACRSYearMACRS percentD1.3333.3333(110,000) = 36,6632.4445.4445(110,000) = 48,8953.1481.1481(110,000) = 16,2914.0741.0741(110,000) = 8,151BV in year 6 = 110,000 36,663 48,895 16,291 8,151 = 0After-tax salvage = 17,000 - .4(17,000 0) = $10,20010-1818Example:

18、 Seven-Year MACRSYearMACRS PercentD1.1429.1429(110,000) = 15,7192.2449.2449(110,000) = 26,9393.1749.1749(110,000) = 19,2394.1249.1249(110,000) = 13,7395.0893.0893(110,000) = 9,8236.0892.0892(110,000) = 9,812BV in year 6 = 110,000 15,719 26,939 19,239 13,739 9,823 9,812 = 14,729After-tax salvage = 17

19、,000 .4(17,000 14,729) = 16,091.6010-1919Example: Replacement ProblemOriginal MachineInitial cost = 100,000Annual depreciation = 9,000Purchased 5 years agoBook Value = 55,000Salvage today = 65,000Salvage in 5 years = 10,000New MachineInitial cost = 150,0005-year lifeSalvage in 5 years = 0Cost saving

20、s = 50,000 per year3-year MACRS depreciationRequired return = 10%Tax rate = 40%10-2020Replacement Problem Computing Cash FlowsRemember that we are interested in incremental cash flowsIf we buy the new machine, then we will sell the old machineWhat are the cash flow consequences of selling the old ma

21、chine today instead of in 5 years?10-2121Replacement Problem Pro Forma Income StatementsYear12345Cost Savings50,00050,00050,00050,00050,000Depr. New49,99566,67522,21511,1150 Old9,0009,0009,0009,0009,000Increm.40,99557,67513,2152,115(9,000)EBIT9,005(7,675)36,78547,88559,000Taxes3,602(3,070)14,71419,1

22、5423,600NI5,403(4,605)22,07128,73135,40010-2222Replacement Problem Incremental Net Capital SpendingYear 0Cost of new machine = 150,000 (outflow)After-tax salvage on old machine = 65,000 - .4(65,000 55,000) = 61,000 (inflow)Incremental net capital spending = 150,000 61,000 = 89,000 (outflow)Year 5Aft

23、er-tax salvage on old machine = 10,000 - .4(10,000 10,000) = 10,000 (outflow because we no longer receive this)10-2323Replacement Problem Cash Flow From AssetsYear012345OCF46,39853,07035,28630,84626,400NCS-89,000-10,000 In NWC00CFFA-89,00046,39853,07035,28630,84616,40010-2424Replacement Problem Anal

24、yzing the Cash FlowsNow that we have the cash flows, we can compute the NPV and IRREnter the cash flowsCompute NPV = 54,801.74Compute IRR = 36.28%Should the company replace the equipment?10-2525Other Methods for Computing OCFBottom-Up ApproachWorks only when there is no interest expenseOCF = NI + de

25、preciationTop-Down ApproachOCF = Sales Costs TaxesDont subtract non-cash deductionsTax Shield ApproachOCF = (Sales Costs)(1 T) + Depreciation*T10-2626Example: Cost CuttingYour company is considering a new computer system that will initially cost $1 million. It will save $300,000 per year in inventor

26、y and receivables management costs. The system is expected to last for five years and will be depreciated using 3-year MACRS. The system is expected to have a salvage value of $50,000 at the end of year 5. There is no impact on net working capital. The marginal tax rate is 40%. The required return i

27、s 8%.Click on the Excel icon to work through the example10-2727Example: Setting the Bid PriceConsider the following information:Army has requested bid for multiple use digitizing devices (MUDDs)Deliver 4 units each year for the next 3 yearsLabor and materials estimated to be $10,000 per unitProducti

28、on space leased for $12,000 per yearRequires $50,000 in fixed assets with expected salvage of $10,000 at the end of the project (depreciate straight-line)Require initial $10,000 increase in NWCTax rate = 34%Required return = 15%10-2828Example: Equivalent Annual Cost AnalysisBurnout BatteriesInitial

29、Cost = $36 each3-year life$100 per year to keep chargedExpected salvage = $5Straight-line depreciationLong-lasting BatteriesInitial Cost = $60 each5-year life$88 per year to keep chargedExpected salvage = $5Straight-line depreciationThe machine chosen will be replaced indefinitely and neither machine will have a differential impact on revenue. No change in NWC is required.The required return is 15%, and the tax rate is 34%.10-2929Quick QuizHow do we determine if cash flows are relevant to the capital budgeting decision?What are the different met