财务管理第十章.pptx

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1、1.Define capital budgeting and identify the steps involved in the capital budgeting process. 2.Explain the procedure to generate long-term project proposals within the firm. 3.Justify why cash, not income, flows are the most relevant to capital budgeting decisions. 4.Define the terms “sunk cost” and

2、 “opportunity cost” and explain why sunk costs must be ignored, while opportunity costs must be included, in capital budgeting analysis.5.Determine initial, interim, and terminal period “after-tax, incremental, operating cash flows” associated with a capital investment project. The Capital Budgeting

3、 ProcessGenerating Investment Project ProposalsEstimating Project “After-Tax Incremental Operating Cash Flows” The process of identifying, analyzing, and selecting investment projects whose returns (cash flows) are expected to extend beyond one year.Generate investment proposals consistent with the

4、firms strategic objectives.Estimate after-tax incremental operating cash flows for the investment projects.Evaluate project incremental cash flows.Select projects based on a value-maximizing acceptance criterion.Reevaluate implemented investment projects continually and perform postaudits for comple

5、ted projects.1. New products or expansion of existing products2. Replacement of existing equipment or buildings3. Research and development4. Exploration5. Other (e.g., safety or pollution related)1. Section Chiefs2. Plant Managers3. VP for Operations4. Capital Expenditures Committee5. President6. Bo

6、ard of Directors (not accounting income) (not financing) IgnoreIncludeInclude project-driven net of spontaneous changes in current liabilitiesInclude the initial net cash investment. those net cash flows occurring after the initial cash investment but not including the final periods cash flow. the f

7、inal periods net cash flow.a) b)+ Capitalized expendituresc)+ () Increased (decreased) NWCd) Net proceeds from sale of “old” asset(s) if replacemente)+ () Taxes (savings) due to the sale of “old” asset(s) if replacementf) a)Net incr. (decr.) in operating revenue less (plus) any net incr. (decr.) in

8、operating expenses, excluding depr.b) (+) Net incr. (decr.) in tax depreciationc)=Net change in income before taxesd) (+) Net incr. (decr.) in taxese)=Net change in income after taxesf)+ () Net incr. (decr.) in tax depr. chargesg)a) Calculate the for the b)+ () Salvage value (disposal/reclamation co

9、sts) of any sold or disposed assetsc) (+) Taxes (tax savings) due to asset sale or disposal of “new” assetsd)+ () Decreased (increased) level of “net” working capitale)Basket Wonders (BW) is considering the purchase of a new basket weaving machine. The machine will cost $50,000 plus $20,000 for ship

10、ping and installation and falls under the 3-year MACRS class. NWC will rise by $5,000. Lisa Miller forecasts that revenues will increase by $110,000 for each of the next 4 years and will then be sold (scrapped) for $10,000 at the end of the fourth year, when the project ends. Operating costs will ri

11、se by $70,000 for each of the next four years. BW is in the 40% tax bracket.a) $50,000b)+ 20,000c)+ 5,000d) 0 (not a replacement)e)+ () 0 (not a replacement)f) * Note that we have calculated this value as a “positive” because it is a cash OUTFLOW (negative). Year 1 Year 2 Year 3 Year 4a) $40,000 $40

12、,000 $40,000 $40,000b) 23,331 31,115 10,367 5,187c)=$16,669 $ 8,885 $29,633 $34,813d) 6,668 3,554 11,853 13,925e)=$10,001 $ 5,331 $17,780 $20,888f)+ 23,331 31,115 10,367 5,187g)a) The from the previous slide in Year 4.b)+ 10,000Salvage Value.c) 4,000.40*($10,000 - 0) Note, the asset is fully depreciated at the end of Year 4.d)+ 5,000NWC - Project ends.e)Asset Expansion Year 0 Year 1 Year 2 Year 3 Year 4* Notice again that this value is a cash flow as we calculated it as the initial cash OUTFLOW before.