公司理財Chap07課件

NetPresentValueandOtherInvestmentRulesChapter7McGraw-Hill/Irwin Copyright

?2009byTheMcGraw-HillCompanies,Inc.Allrightsreserved.

公司理財Chap07NetPresentValueandOtherIn1KeyConceptsandSkillsBeabletocomputepaybackanddiscountedpaybackandunderstandtheirshortcomingsUnderstandaccountingratesofreturnandtheirshortcomingsBeabletocomputetheinternalrateofreturnandprofitabilityindex,understandingthestrengthsandweaknessesofbothapproachesBeabletocomputethenetpresentvalueandunderstandwhyitisthebestdecisioncriterion公司理財Chap072KeyConceptsandSkillsBeableChapterOutline7.1WhyUseNetPresentValue?7.2ThePaybackPeriodMethod7.3TheDiscountedPaybackPeriodMethod7.4TheAverageAccountingReturnMethod7.5TheInternalRateofReturn7.6ProblemswiththeIRRApproach7.7TheProfitabilityIndex7.8ThePracticeofCapitalBudgeting公司理財Chap073ChapterOutline7.1WhyUseNet7.1WhyUseNetPresentValue?AcceptingpositiveNPVprojectsbenefitsshareholders.NPVusescashflowsNPVusesallthecashflowsoftheprojectNPVdiscountsthecashflowsproperlyReinvestmentassumption:theNPVruleassumesthatallcashflowscanbereinvestedatthediscountrate.公司理財Chap0747.1WhyUseNetPresentValue?TheNetPresentValue(NPV)RuleNetPresentValue(NPV)=TotalPVoffutureCF’s+InitialInvestmentEstimatingNPV:1.Estimatefuturecashflows:howmuch?andwhen?2.Estimatediscountrate3.EstimateinitialcostsMinimumAcceptanceCriteria:AcceptifNPV>0RankingCriteria:ChoosethehighestNPV公司理財Chap075TheNetPresentValue(NPV)RuCalculatingNPVwithSpreadsheetsSpreadsheetsareanexcellentwaytocomputeNPVs,especiallywhenyouhavetocomputethecashflowsaswell.UsingtheNPVfunction:Thefirstcomponentistherequiredreturnenteredasadecimal.Thesecondcomponentistherangeofcashflowsbeginningwithyear1.AddtheinitialinvestmentaftercomputingtheNPV.公司理財Chap076CalculatingNPVwithSpreadshe7.2ThePaybackPeriodMethod公司理財Chap0777.2ThePaybackPeriodMethod公7.2ThePaybackPeriodMethodHowlongdoesittaketheprojectto“payback”itsinitialinvestment?PaybackPeriod=numberofyearstorecoverinitialcostsMinimumAcceptanceCriteria:SetbymanagementRankingCriteria:Setbymanagement公司理財Chap0787.2ThePaybackPeriodMethodH7.2ThePaybackPeriodMethod公司理財Chap0797.2ThePaybackPeriodMethod公7.2ThePaybackPeriodMethod(c)10K22K37K

47K54KPBP =a+(b-c)/d =3+(40-37)/10 =3+(3)/10 =3.3Yearsaccumulativecashflow(a)(-b)(d)012345公司理財Chap07107.2ThePaybackPeriodMethod(ThePaybackPeriodMethodDisadvantages:IgnoresthetimevalueofmoneyIgnorescashflowsafterthepaybackperiodBiasedagainstlong-termprojectsRequiresanarbitraryacceptancecriteriaAprojectacceptedbasedonthepaybackcriteriamaynothaveapositiveNPVAdvantages:EasytounderstandBiasedtowardliquidity公司理財Chap0711ThePaybackPeriodMethodDisad7.3TheDiscountedPaybackPeriodHowlongdoesittaketheprojectto“payback”itsinitialinvestment,takingthetimevalueofmoneyintoaccount?Decisionrule:Accepttheprojectifitpaysbackonadiscountedbasiswithinthespecifiedtime.Bythetimeyouhavediscountedthecashflows,youmightaswellcalculatetheNPV.公司理財Chap07127.3TheDiscountedPaybackPer7.4AverageAccountingReturnAnotherattractive,butfatallyflawed,approachRankingCriteriaandMinimumAcceptanceCriteriasetbymanagement公司理財Chap07137.4AverageAccountingReturnA7.4AverageAccountingReturn公司理財Chap07147.4AverageAccountingReturn公AverageAccountingReturnDisadvantages:IgnoresthetimevalueofmoneyUsesanarbitrarybenchmarkcutoffrateBasedonbookvalues,notcashflowsandmarketvaluesAdvantages:TheaccountinginformationisusuallyavailableEasytocalculate公司理財Chap0715AverageAccountingReturnDisad

7.5TheInternalRateofReturnIRR:thediscountratethatsetsNPVtozeroMinimumAcceptanceCriteria:AcceptiftheIRRexceedstherequiredreturnRankingCriteria:SelectalternativewiththehighestIRRReinvestmentassumption:AllfuturecashflowsassumedreinvestedattheIRR公司理財Chap07167.5TheInternalRateofRetuInternalRateofReturn(IRR)

i1i實

i2

DiscountedRateNPV10NPV2i計

NPV公司理財Chap0717InternalRateofReturn(IRR)InternalRateofReturn(IRR)

公司理財Chap0718InternalRateofReturn(IRR)InternalRateofReturn(IRR)Disadvantages:DoesnotdistinguishbetweeninvestingandborrowingIRRmaynotexist,ortheremaybemultipleIRRsProblemswithmutuallyexclusiveinvestmentsAdvantages:Easytounderstandandcommunicate公司理財Chap0719InternalRateofReturn(IRR)DIRR:ExampleConsiderthefollowingproject:0123$50$100$150-$200Theinternalrateofreturnforthisprojectis19.44%公司理財Chap0720IRR:ExampleConsiderthefolloNPVPayoffProfileIfwegraphNPVversusthediscountrate,wecanseetheIRRasthex-axisintercept.IRR=19.44%公司理財Chap0721NPVPayoffProfileIfwegraphCalculatingIRRwithSpreadsheetsYoustartwiththecashflowsthesameasyoudidfortheNPV.YouusetheIRRfunction:Youfirstenteryourrangeofcashflows,beginningwiththeinitialcashflow.Youcanenteraguess,butitisnotnecessary.Thedefaultformatisawholepercent–youwillnormallywanttoincreasethedecimalplacestoatleasttwo.公司理財Chap0722CalculatingIRRwithSpreadshe7.6ProblemswithIRRAreWeBorrowingorLendingMultipleIRRsTheScaleProblemTheTimingProblem公司理財Chap07237.6ProblemswithIRR公司理財Chap0MutuallyExclusivevs.IndependentMutuallyExclusiveProjects:onlyONEofseveralpotentialprojectscanbechosen,e.g.RANKallalternatives,andselectthebestone.IndependentProjects:acceptingorrejectingoneprojectdoesnotaffectthedecisionoftheotherprojects.MustexceedaMINIMUMacceptancecriteria公司理財Chap0724MutuallyExclusivevs.IndepenAreWeBorrowingorLending公司理財Chap0725AreWeBorrowingorLending公司理AreWeBorrowingorLending公司理財Chap0726AreWeBorrowingorLending公司理MultipleIRRsTherearetwoIRRsforthisproject:0 1 2 $230 -$132-$100Whichoneshouldweuse?公司理財Chap0727MultipleIRRsTherearetwoIRRModifiedIRRCalculatethenetpresentvalueofallcashoutflowsusingtheborrowingrate.Calculatethenetfuturevalueofallcashinflowsusingtheinvestingrate.Findtherateofreturnthatequatesthesevalues.Benefits:singleanswerandspecificrates公司理財Chap0728ModifiedIRRCalculatethenetTheScaleProblemWouldyourathermake100%or50%onyourinvestments?Whatifthe100%returnisona$1investment,whilethe50%returnisona$1,000investment?項目C(0)C(1)NPVIRRA-1+1.50.550B-10+111.0010公司理財Chap0729TheScaleProblemWouldyouratTheScaleProblemCashFlowDate0CashFlowDate1NPV@25%IRR(%)SmallBudget-104022300LargeBudget-256527160公司理財Chap0730TheScaleProblemCashFlowDatTheScaleProblemDate0Date1Incrementalcash-25-（-10）=-1565-40=25公司理財Chap0731TheScaleProblemDate0Date1ITheTimingProblem0 1 2 3$10,000$1,000 $1,000-$10,000ProjectA0 1 2 3$1,000 $1,000 $12,000-$10,000ProjectB公司理財Chap0732TheTimingProblem0 1 TheTimingProblem10.55%=crossoverrate16.04%=IRRA12.94%=IRRB公司理財Chap0733TheTimingProblem10.55%=croCalculatingtheCrossoverRateComputetheIRRforeitherproject“A-B”or“B-A”10.55%=IRR公司理財Chap0734CalculatingtheCrossoverRateIRRGeneralRules公司理財Chap0735IRRGeneralRules公司理財Chap073NPVversusIRRNPVandIRRwillgenerallygivethesamedecision.Exceptions:Non-conventionalcashflows–cashflowsignschangemorethanonceMutuallyexclusiveprojectsInitialinvestmentsaresubstantiallydifferentTimingofcashflowsissubstantiallydifferent公司理財Chap0736NPVversusIRRNPVandIRRwillATestYoumustknowthediscountratetocomputetheNPVofaprojectbutyoucomputetheIRRwithoutreferringtothediscountrate.Hence,theIRRruleiseasiertoapplythantheNPVrulebecauseyoudonnotusethediscountratewhenapplyingIRR公司理財Chap0737ATestYoumustknowthediscou7.7TheProfitabilityIndex(PI)MinimumAcceptanceCriteria:AcceptifPI>1RankingCriteria:SelectalternativewithhighestPI公司理財Chap07387.7TheProfitabilityIndex(P7.7TheProfitabilityIndex(PI)Project012PINPVA-2070103.5350.5B-1015404.5335.3012PINPVA-B-1055-302.5215.2公司理財Chap07397.7TheProfitabilityIndex(P7.7CapitalRationing項目012PINPVA-2070103.5350.5B-1015404.5335.3C-10-5604.3433.4Initialinvestment20公司理財Chap07407.7CapitalRationing項目012PINPTheProfitabilityIndexDisadvantages:ProblemswithmutuallyexclusiveinvestmentsAdvantages:MaybeusefulwhenavailableinvestmentfundsarelimitedEasytounderstandandcommunicateCorrectdecisionwhenevaluatingindependentprojects公司理財Chap0741TheProfitabilityIndexDisadva7.8ThePracticeofCapitalBudgetingVariesbyindustry:Somefirmsusepayback,othersuseaccountingrateofreturn.ThemostfrequentlyusedtechniqueforlargecorporationsisIRRorNPV.公司理財Chap07427.8ThePracticeofCapitalBu7.8ThePracticeofCapitalBudgetingAlwaysOrAlmostAlwaysIRR75.6%NPV74.9%PPM56.7%DPPM29.5%AAR30.3%PI11.9%Thetheoryandpracticeofcorporatefinance:Evidencefromthefield.JohnR.Graham,CampbellR.Harvey.JournalofFinancialEconomics,2001

公司理財Chap07437.8ThePracticeofCapitalBu7.8ThePracticeofCapitalBudgeting公司理財Chap07447.8ThePracticeofCapitalBuExampleofInvestmentRulesComputetheIRR,NPV,PI,andpaybackperiodforthefollowingtwoprojects.Assumetherequiredreturnis10%.Year ProjectA ProjectB 0 -$200 -$150 1 $200 $50 2 $800 $100 3 -$800 $150公司理財Chap0745ExampleofInvestmentRulesComExampleofInvestmentRules

ProjectA ProjectBCF0 -$200.00 -$150.00PV0ofCF1-3 $241.92 $240.80NPV= $41.92 $90.80IRR= 0%,100% 36.19%PI= 1.2096 1.6053公司理財Chap0746ExampleofInvestmentRules PrExampleofInvestmentRulesPaybackPeriod: ProjectA ProjectBTimeCF Cum.CF CF Cum.CF 0 -200 -200 -150 -150 1 200 0 50 -100 2 800 800 100 0 3 -800 0 150 150PaybackperiodforprojectB=2years.PaybackperiodforprojectA= 1or3years?公司理財Chap0747ExampleofInvestmentRulesPayNPVandIRRRelationship

Discountrate NPVforA NPVforB -10% -87.52 234.77 0% 0.00 150.00 20% 59.26 47.92 40% 59.48 -8.60 60% 42.19 -43.07 80% 20.85 -65.64 100% 0.00 -81.25 120% -18.93 -92.52 公司理財Chap0748NPVandIRRRelationship DiscoProjectAProjectB($200)($100)$0$100$200$300$400-15%0%15%30%45%70%100%130%160%190%DiscountratesNPVIRR1(A)IRR(B)NPVProfilesIRR2(A)Cross-overRate公司理財Chap0749ProjectAProjectB($200)($100)Summary–DiscountedCashFlowNetpresentvalueDifferencebetweenmarketvalueandcostAccepttheprojectiftheNPVispositiveHasnoseriousproblemsPreferreddecisioncriterionInternalrateofreturnDiscountratethatmakesNPV=0TaketheprojectiftheIRRisgreaterthantherequiredreturnSamedecisionasNPVwithconventionalcashflowsIRRisunreliablewithnon-conventionalcashflowsormutuallyexclusiveprojectsProfitabilityIndexBenefit-costratioTakeinvestmentifPI>1Cannotbeusedtor