财务管理财务.pptx

6.1 Why Use Net Present Value?企业：投资项目之和企业：投资项目之和Accepting positive NPV projects benefits shareholders.NPV uses cash flowsNPV uses all the cash flows of the projectNPV discounts the cash flows properlyReinvestment assumption:the NPV rule assumes that all cash flows can be reinvested at the discount rate.第2页/共47页Net Present Value(NPV)RuleNet Present Value(NPV)=Total PV of future CFs+Initial InvestmentEstimating NPV:1.Estimate future cash flows:how much?and when?2.Estimate discount rate3.Estimate initial costsMinimum Acceptance Criteria:Accept if NPV 0Ranking Criteria:Choose the highest NPV第3页/共47页当当NPV=0,accept or abandon？1 风险调整风险调整.2 难以量化的收益难以量化的收益.3 公司形象公司形象.4 掌握更多财务资源（实物期权）掌握更多财务资源（实物期权）.5 更大规模。更大规模。if true,investing in any project with a nonnegative NPV may be desirable 第4页/共47页 financially or ethically sound Whether to buy a publication rights of new book“How to Cheat:A Users Guide.”The year 0 cash flow is-20,000,year 1 is 60,000 and years 2 and 3 are 30,000 each.Given a cost of capital of 8%,the NPV is just over$85,000.Will you run a gambling house?the value of Reputational Capital 第5页/共47页6.2 The Payback Period MethodHow long does it take the project to“pay back”its initial investment?Payback Period=number of years to recover initial costsPayback period rule investment is acceptable if the calculated payback is less than some prespecified number of years.payback period cutoff:Set by management第6页/共47页The Payback Period MethodDisadvantages:Ignores the time value of money,and the order of CFsIgnores CFs after the payback periodBiased against long-term projectsRequires an arbitrary acceptance criteriaA project accepted based on the payback criteria may not have a positive NPV第7页/共47页Advantages:Easy to understandBiased toward liquidityFirms in countries with volatile governments may also be concerned with quick paybacks.the payback period technique is used quite heavily in the health care industry.第8页/共47页6.3 The Discounted Payback PeriodHow long does it take the project to“pay back”its initial investment,taking the time value of money into account?Decision rule:Accept the project if it pays back on a discounted basis within the specified time.By the time you have discounted the cash flows,you might as well calculate the NPV.第9页/共47页Advantagespayback rule+the time value of moneyIf all positive cash flows after the initial investment,it must have a positive NPVDisadvantagesIf there are negative cash flows after the cut-off period,the rule may accept a project that has a negative NPVThe arbitrary cut-off period eliminate projects that would increase firm value第10页/共47页6.4 Average Accounting ReturnAnother attractive,but fatally flawed,approachRanking Criteria Minimum Acceptance Criteria set by management第11页/共47页Average Accounting ReturnDisadvantages:Based on book values,not cash flows and market values Ignores the time value of moneyUses an arbitrary benchmark cutoff rateAdvantages:The accounting information is usually availableEasy to calculate第12页/共47页many smaller firms rely more heavily on non-DCF approaches.(1)not have direct access to the capital markets and,more difficult to estimate discount rates;(2)the AAR is the project-level equivalent to the ROA measure used for analyzing firm profitability;(3)some small firm decision-makers may be less aware of DCF approaches than their large firm counterparts.第13页/共47页 6.5 The Internal Rate of ReturnIRR:the discount rate that sets NPV=0 Minimum Acceptance Criteria:Accept if the IRR exceeds the required returnRanking Criteria:Select alternative with the highest IRRReinvestment assumption:All future cash flows assumed reinvested at the IRR第14页/共47页IRR:ExampleConsider the following project:0123$50$100$150-$200The internal rate of return for this project is 19.44%第15页/共47页NPV Payoff ProfileIf we graph NPV versus the discount rate,we can see the IRR as the x-axis intercept.IRR=19.44%第16页/共47页6.6 Problems with IRRqMultiple IRRsqAre We Borrowing or LendingqThe Scale ProblemqThe Timing Problem第18页/共47页Mutually Exclusive互斥互斥 vs.Independent独立独立Mutually Exclusive Projects:only ONE of several potential projects can be chosen,e.g.,which college to attend？RANK all alternatives,and select the best one.Independent Projects:accepting or rejecting one project does not affect the decision of the other projects.Must exceed a MINIMUM acceptance criteria第19页/共47页Problem 1:Investing or Financing?Invest:CF00Finance:CF00,CF1 1Ranking Criteria:Select alternative with highest PI第32页/共47页PI的相关问题的相关问题Technically,this is true only if the initial investment is the only outflow.If there are additional outflows after year 0,then the profitability index=present value of inflows/present value of outflows.当公司没有充足的资本投入时，资本配置问题：盈利指数法则当公司没有充足的资本投入时，资本配置问题：盈利指数法则按盈利指数排按盈利指数排序。序。P119-120例例第33页/共47页The Profitability IndexDisadvantages:Problems with mutually exclusive investmentsAdvantages:May be useful when investment funds are limitedEasy to understand and communicateCorrect decision when evaluating independent projects第34页/共47页6.8 The Practice of Capital BudgetingVaries by industry:p120-121Some firms use payback,others use accounting rate of return.The most frequently used technique for large corporations is IRR or NPV.第35页/共47页Example of Investment RulesCompute the IRR,NPV,PI,and payback period for the following two projects.Assume the required return is 10%.Year Project A Project B0-$200-$1501$200$502$800$1003-$800$150第36页/共47页Example of Investment RulesProject AProject BCF0-$200.00-$150.00PV0 of CF1-3$241.92$240.80NPV=$41.92$90.80IRR=0%,100%36.19%PI=1.20961.6053 第37页/共47页Example of Investment RulesPayback Period:Project AProject B Time CF Cum.CFCF Cum.CF0-200-200-150-1501200050-100280080010003-8000150150Payback period for project B=2 years.Payback period for project A=1 or 3 years?第38页/共47页NPV and IRR RelationshipDiscount rate NPV for A NPV for B-10%-87.52234.770%0.00150.0020%59.2647.9240%59.48-8.6060%42.19-43.0780%20.85-65.64100%0.00-81.25120%-18.93-92.52第39页/共47页Project AProject B($200)($100)$0$100$200$300$400-15%0%15%30%45%70%100%130%160%190%Discount ratesNPVIRR 1(A)IRR(B)NPV ProfilesIRR 2(A)Cross-over Rate第40页/共47页Summary Discounted Cash FlowNet present valueDifference between market value and costAccept the project if the NPV is positiveHas no serious problemsPreferred decision criterionInternal rate of returnDiscount rate that makes NPV=0Take the project if the IRR is greater than the required return第41页/共47页Same decision as NPV with conventional cash flowsIRR is unreliable with non-conventional cash flows or mutually exclusive projectsProfitability IndexBenefit-cost ratioTake investment if PI 1Cannot be used to rank mutually exclusive projectsMay be used to rank projects in the presence of capital rationing第42页/共47页Summary Payback CriteriaPayback periodLength of time until initial investment is recoveredTake the project if it pays back in some specified periodDoes not account for time value of money,and there is an arbitrary cutoff period第43页/共47页Discounted payback periodLength of time until initial investment is recovered on a discounted basisTake the project if it pays back in some specified periodThere is an arbitrary cutoff period第44页/共47页Summary Accounting CriterionAverage Accounting ReturnMeasure of accounting profit relative to book valueSimilar to return on assets measureTake the investment if the AAR exceeds some specified return levelSerious problems and should not be used第45页/共47页Quick QuizConsider an investment that costs$100,000 and has a cash inflow of$25,000 every year for 5 years.The required return is 9%,and payback cutoff is 4 years.What is the payback period?What is the discounted payback period?What is the NPV?What is the IRR?Should we accept the project?What method should be the primary decision rule?When is the IRR rule unreliable?第46页/共47页感谢您的观看！第47页/共47页