夏南新中山大学岭南学院.ppt

夏南新 中山大学岭南学院 Still waters run deep.流静水深流静水深,人静心深人静心深 Where there is life,there is hope。有生命必有希望。有生命必有希望The content of the course is concerned with corp-orate investment decision making,in particular the evaluation of long term capital expenditure decisi-ons.Most of the theoretical approaches covered are relatively nonproblematical,such as the theor-etical strength of net present value as a decision criterion.IntroductionThe nature of investment decisionsAn overviewThe course covers a particular area of managerial economics:the theory of investment decision making by business corporations.Nevertheless such a theory cannot succeed in its task if it is developed in isolation from what actually does happen in practice,so we should guide and enrich the development of our normative approach.The value baseThe investment decision theory developed in this course is founded on the valuation bases that co-me from capitalism and the idea of the free mark-et economy.The“model”approach and the structure of the textWe have structured this text in four sections:1.Introduction to the context of financial decisionsIntroduction and Chapters 1 and 2.2.The capital investment decisionChapters 3 to 8.3.The impact of uncertainty on the capital invest-ment decisionChapters 9 and 10.4.Investment decisions in an international cont-extChapter11.The difficulties caused by taxation,inflation and capital scarcity will all be taken into account,as will the concept of risk and the fact that the fu-ture is uncertain.A warningAs a final point,the learner should be constantly aware that the theory of investment decisions which is presented here is neither in a state of ge-neral detailed agreement,nor does it yet provide complete solutions to many of the important pr-oblems of financial decision making.In order to reflect this state of affairs,we shall examine the cause and evidence of these controversies and point out the irrationalities,ambiguities and inco-nsistencies that necessarily accompany the development of any theory that aspires to real world application.The decision processWe have first to discuss to discuss the circumsta-nces in which a decision needs be made.We can specify two necessary conditions for a decision situation:1.The existence of alternatives 2.The existence of an objective or goalThe existence of alternatives is necessary beca-use,if there are no alternatives from which to choose,then there is no need for a decision.Rationally a person will be unwilling to do so unless he expects that some of the perceived alternatives will be preferred to others in relation to attaining the desired objective.Valuation of alternativesTogether,these two necessary conditions provide the rationale for making decisions:if the decision maker does not perceive alternatives,or sees no reason to choose between the alternatives if they are perceived,then no decision will be made.Therefore,the valuation method used must be related to the objective involved in making the decision and the way in which that objective is expressed.For example,if our objective were to drive from A to B in the shortest possible time,then we should value the alternative routes from A to B by a common value criterion which was related to our objective of time,and choose whichever route took the shortest time,Suppose there were three alternative routes and one we valued by time,one by distance and one by scenic beauty.We obviously could not make a decision because the alternatives have different measures or yard-sticks of value and so cannot be compared.Investment decision makingThe course focuses attention on only two of the three components(i.e.,a series of perceived alternatives,an expectation that these alternatives are not all equally desirable in terms of attaining an objective held by the decision maker,and a common value base related to the decision objective.)that we have identified in the decision process andexamines how they relate to the making of invest-ment decisions:the expectation that the perceived alternatives are not all equally desirable in terms of attaining a specific objective,and the common value base that is related to this objective and is used to compare the alternatives.The approach of the fundamental value judgement is most appropriate for largely unregulated,comp-etitive economies on this course,i.e.,capitalism.In such economies,it is reasonable to assume that companies exist for one overriding purpose:in order to benefit their owners.This rationale for existence undoubtedly holds true for the great majority of privately owned companies(and also,to some extent,for state-owned industriesThe decision objectivealthough their rationale for existence can be more complex).Therefore,managements objective in making investment decisions should be to further the very reason for the companys existence,of benefiting the owners,i.e.,the shareholders.Maximizing shareholder wealthMorality,the law and other things might act as constraints on what a company does but they are entirely different issues and are generally asses-sed using different criteria.Ordinary share capital,the substance of owne-rship,is normally provided through supply and demand markets(e.g.,stock exchanges),which means that potential shareholders can buy shares in companies that they expect will provide them with the greatest possible increase in wealth(i.e.,shareholders have to make financial decisions in much the same way as management,choosing between alternative ownership opportunities),and existing shareholders can sell their shares if they see other companies providing greater incre-ases to their owners wealth than they are receiv-ing.Therefore,if a company were to make its decisi-ons on bases other than that of maximizing share-holder wealth,the whole rationale for the compa-nys existence so far as shareholders areconcerned would be in doubt and they would be likely to take their investment funds elsewh-ere.Defining wealthWealth can be defined as the capacity to consume or,to put it in more straightforward terms,money,cash,or other assets.Thus the objective of management becomes the maximization of shareholders purchasing power,which can be achieved by maximizing the amount of cash paid out to shareholders in the form of dividends.The role of accounting profitAccounting has developed over hundreds of years from a bass called stewardship.Investment decisions are basically economic or resource allocation decisions.Mangement have to decide whether they should allocate the firms scarce resources(land,labour,machinery,etc.)to a particular project.The economic unit of account is cash,not accounting profit,because it is cash which gives power to command resources(i.e.resources are purchased with cash,not profit).The companys financial decision makers should have as their major concern the maximization of the flow of cash through time to the shareholders,but they should always do so with an eye to repo-rted profit.The time dimensionAs asset(such as a machine or a share in a company)is valued on the basis of the gains,or losses,that the owner receives.Furthermore,these gains and losses do not refer to just a single time period,but to the whole period of future time for which the asset will exist.(This concept is sometimes referred to as the assets earning power.)The greater the future dividend flow,the morehighly are the shares valued.The objective hierarchyTo summarize the assumed hierarchy of decision objectives:1.Decisions are taken by companies so as to maximize owners wealth.2.Owners wealth can be maximized through maximizing owners purchasing power.3.Purchasing power can be maximized through maximizing the amount of cash the company pa-ys out to shareholders in the form of dividends.4.With the introduction of the time dimension the objective becomes the maximizing of the val-ue of the dividend flow through time to the share-holders.5.The maximization of the value of the dividend flow through time maximizes the stock markets valuation of the companys ordinary share capital.A fundamental assumptionIt was earlier argued that the maximization of shareholders wealth had to be the fundamental decision objective,because of the nature of the capital markets.However,the validity of this assertion depends entirely upon the assumption that shareholders perceive wealth in the way we have postulated and that in this perception they are rational.Technology and investment decision makingIt is now most unlikely that decision makers will not have accessed to computer facilities,which sophisticated software can be used to aid their decisions.