CapitalBudgeting（ppt 47）42938.pptx

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1、8-1 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungCapital BudgetingChapter 88-2 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungLearning Objective 1Describe the nature and importance of long-term asse

2、ts.8-3 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungLong-Term(Capital)AssetsuWhat are long-term capital assets?uLong-term capital assets are equipment or facilities that provide productive services to the organization for more than one accounting p

3、eriod.8-4 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungLong-Term(Capital)AssetsuOrganizations have developed specific tools to control the acquisition and use of long-term assets for three reasons:uOrganizations commit to long-term assets for exten

4、ded periods of time.uThe amount of capital committed is usually very large.uThe long-term nature of capital assets creates technological risk for organizations.8-5 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungLong-Term(Capital)AssetsuWhat is capita

5、l budgeting?uIt is a systematic approach to evaluating an investment in long-term assets.8-6 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungLearning Objective 2Use the basic tools and concepts of financial analysis:investment,return,future value,pres

6、ent value,annuities,and required rate of return.8-7 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungInvestment and ReturnuInvestment is the monetary value of the assets that the organization gives up to acquire a long-term asset.uReturn is the increas

7、ed cash inflows in the future that are attributable to the long-term asset.uInvestment and return are the foundations of capital budgeting analysis.8-8 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungTime Value of MoneyuA central concept in capital bu

8、dgeting is the time value of money.uBecause money can earn a return,its value depends on the time period in which it is received.uAmounts of money received at different periods of time must be converted to their value on a common date to be compared.8-9 2001 Prentice Hall Business Publishing Managem

9、ent Accounting,3/E,Atkinson,Banker,Kaplan,and YoungTime Value of MoneyuThe future value of money is the value that an amount invested today will be after a stated number of periods at a given rate of return.uHow much would an initial amount of$100 accumulate over five years when the rate of return i

10、s 5%per year?8-10 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungTime Value of MoneyTodayYear 55%5%5%5%5%$100.00$127.63FV=PV (1+r)n8-11 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungTime Value of Mon

11、eyCompound Growth of Investment,5 periods at 5%Year 0:$1.00Year 1:$1.05Year 2:$1.1025Year 3:$1.1576Year 4:$1.2155Year 5:$1.27638-12 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungPresent ValueuWhat is the present value of money?uIt is the current mon

12、etary worth of an amount to be paid in the future under stated conditions of interest and compounding.uAnalysts call a future cash flows value at time zero its present value.uThe process of computing present value is called discounting.8-13 2001 Prentice Hall Business Publishing Management Accountin

13、g,3/E,Atkinson,Banker,Kaplan,and YoungPresent ValueuWhat is the present value of$127.63 to be received 5 years from now when the rate of return is 5%per year?u$100.00PV=FV (1+r)n8-14 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungTime Value of MoneyT

14、odayYear 55%5%5%5%5%$127.63$100.00Present value of$127.63 in 5 years at a 5%annual rate of return8-15 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungPresent Value and Future Value of AnnuitiesuWhat is an annuity?uIt is a contract involving a series o

15、f constant payments or receipts to be paid or received for a stated number of periods at a specified rate.8-16 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungPresent Value and Future Value of AnnuitiesuWhat is the future value of an annuity?uIt is th

16、e sum of payments plus accumulated interest.uWhat is the present value of an annuity?uIt is the value today of a series of future payments or receipts.8-17 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungPresent Value and Future Value of AnnuitiesFutu

17、re value of an annuity of$1,5 periods at 5%Periods Future Value 1$1.000 2$2.050 3$3.153 4$4.310 5$5.526 8-18 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungPresent Value and Future Value of AnnuitiesPresent value of an annuity of$1,5 periods at 5%Per

18、iods Present Value 1$0.952 2$1.859 3$2.723 4$3.546 5$4.3298-19 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungCost of CapitaluWhat is the cost of capital?uIt is the interest rate organizations use in computing the time value of money.uIt equals the r

19、eturn that the organization must earn on its investments to meet its investors return requirements.uThe cost of capital is the benchmark the organization uses to evaluate investment proposals.8-20 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungLearni

20、ng Objective 3Demonstrate how capital budgeting is used to evaluate investment proposals and how the concepts of payback,accounting rate of return,net present value,internal rate of return,and economic value added relate to capital budgeting.8-21 2001 Prentice Hall Business Publishing Management Acc

21、ounting,3/E,Atkinson,Banker,Kaplan,and YoungApproaches to Capital BudgetingPaybackAccounting rate of returnNet present valueInternal rate of returnProfitability indexEconomic value added8-22 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungApproaches t

22、o Capital BudgetinguShirleys Doughnut Hole is considering the purchase of a new machine that will cost$70,000 and last five years.uIts salvage value is$10,000.uThe machine will increase profits by$20,000 per year.uThe cost of capital is 10%.uIs this investment worthwhile?8-23 2001 Prentice Hall Busi

23、ness Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungPayback CriterionuThe payback period,or payback criterion,computes the number of periods needed to recover a projects initial investment.Payback time=70,000 20,000=3.5 years8-24 2001 Prentice Hall Business Publishing Managemen

24、t Accounting,3/E,Atkinson,Banker,Kaplan,and YoungAccounting Rate of Return CriterionuThe accounting rate of return approximates the return of investment.Accounting Rate of Return=Average Income Average Investment8-25 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Ka

25、plan,and YoungAccounting Rate of Return CriterionuWhat is the straight-line method annual depreciation?u($70,000$10,000)5=$12,000uWhat is the increased annual income?u$20,000$12,000=$8,000 uWhat is the average investment?u($70,000+$10,000)2=$40,0008-26 2001 Prentice Hall Business Publishing Manageme

26、nt Accounting,3/E,Atkinson,Banker,Kaplan,and YoungAccounting Rate of Return CriterionuWhat is the accounting rate of return?uARR=$8,000$40,000=20%uIf the accounting rate of return exceeds the criterion,or target rate of return,the project is acceptable.uThe accounting rate of return does not conside

27、r the explicit timing of cash flows.8-27 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungNet Present Value CriterionuThe net present value is the sum of the present values of all cash inflows and outflows associated with a project.uThis model is the m

28、ost widely recommended approach to capital budgeting.uIt specifically considers the time value of money.8-28 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungNet Present Value CriterionuWhat are the steps in computing NPV?uChoose the period length.uIde

29、ntify the firms cost of capital.uIdentify the incremental cash flows.uCompute the PV of the cash flows.uSum the projects cash flows and determine the NPV.uAccept or reject the project.8-29 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungNet Present Va

30、lue Criterion Periods Amount PV Factor Present Value 0 ($70,000)1.0000 ($70,000.00)120,0000.9091 18,181.82 220,0000.8264 16,528.93 320,0000.7513 15,026.30 420,0000.6830 13,660.27 530,0000.6209 18,627.64 Total$12,024.968-30 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Ban

31、ker,Kaplan,and YoungInternal Rate of Return CriterionuThe internal rate of return(IRR)is the actual rate of return expected from an investment.uThe IRR is the discount rate that makes the investments net present value equal zero.8-31 2001 Prentice Hall Business Publishing Management Accounting,3/E,A

32、tkinson,Banker,Kaplan,and YoungInternal Rate of Return Criterion Periods Amount PV Factor Present Value 0 ($70,000)1.0000 ($70,000.00)120,0000.8610 17,220.60 220,0000.7414 14,827.45 320,0000.6383 12,766.87 420,0000.5496 10,992.66 530,0000.4733 14,197.51 Total$5.09 Internal Rate of Return:16.14%8-32

33、2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungProfitability IndexuThe profitability index is a variation on the net present value method.uIt is computed by dividing the present value of the cash inflows by the present value of the cash outflows.uA p

34、rofitability index of 1 or greater is required for the project to be acceptable.8-33 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungProfitability IndexuWhat is Shirleys profitability index?u$82,025$70,000=1.178-34 2001 Prentice Hall Business Publishi

35、ng Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungEconomic Value Added CriterionuEconomic value added is used as a tool to evaluate organizational performance.Economic Value Added=Adjusted Accounting Income(Cost of Capital Investment)8-35 2001 Prentice Hall Business Publishing Management

36、Accounting,3/E,Atkinson,Banker,Kaplan,and YoungLearning Objective 4Evaluate the effect of income taxes on investment decisions and show how to incorporate tax considerations in capital budgeting.8-36 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungEff

37、ect of TaxesuOrganizations must pay taxes on net benefits(taxable income).uThe allocation of the cost of a capital investment through depreciation can offset some taxes.uTaxable income,the tax rate,and tax depreciation methods are determined by legislation.8-37 2001 Prentice Hall Business Publishing

38、 Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungTime0123455TotalCash Flow($70,000)20,00020,00020,00020,00020,00010,000Depreciation$12,000 12,000 12,000 12,000 12,000 0Tax Income$8,000 8,000 8,000 8,000 8,000 0Tax 40%$3,200 3,200 3,200 3,200 3,200 0Net Cash Flow($70,000)16,800 16,800 16,80

39、0 16,800 16,800 10,000PV Factor1.00000.93460.87340.81630.76290.71300.7130PV($70,000)15,701 14,674 13,714 12,817 11,978 7,130$6,013Net Present Value Calculations with TaxesEffect of Taxes8-38 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungLearning Obj

40、ective 5Define and use what-if and sensitivity analysis in capital budgeting including strategic considerations in capital budgeting.8-39 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungWhat-if and Sensitivity AnalysisuWhat-if analysis is the process

41、of varying the assumptions underlying a forecasting model to determine the effects of those assumptions on the forecasted amounts.uSensitivity analysis is the process of varying the assumptions underlying a decision to determine the decisions sensitivity to those assumptions.8-40 2001 Prentice Hall

42、Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungWhat-if and Sensitivity AnalysisuWhy are what-if and sensitivity analyses important tools?uThey allow decision makers to estimate the opportunity cost of the imperfect information upon which decisions are based.8-41 2001 P

43、rentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungStrategic ConsiderationsuStrategic benefits reflect the enhanced revenue and profit potential that derive from some attribute or long-term asset.uWhat are some strategic benefits provided by long-term assets?8

44、-42 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungStrategic Considerations1They allow an organization to make goods or deliver a service that competitors cannot.2They support improving product quality by reducing the potential to make mistakes.3They

45、 help shorten the cycle time needed to make the product.8-43 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungLearning Objective 6Use postimplementation audits in capital budgeting.8-44 2001 Prentice Hall Business Publishing Management Accounting,3/E,A

46、tkinson,Banker,Kaplan,and YoungPostimplementation Audits and Capital BudgetinguA postimplementation audit of the capital budgeting decision is revisiting the decision to purchase a long-lived asset.uIt is an opportunity to re-evaluate a past decision by comparing expected and actual inflows and outf

47、lows.8-45 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungPostimplementation Audits and Capital BudgetinguWhat are some benefits of postimplementation audits?uPlanners can avoid future mistakes.uBy comparing estimates with results,planners can determi

48、ne why their estimates were incorrect.8-46 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungPostimplementation Audits and Capital BudgetinguRewards can be given to those who make good capital budgeting decisions.uIt controls planners.uIf the audit is n

49、ot done,there are no controls on planners who might be tempted to inflate the benefits in order to get their projects approved.8-47 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and YoungEnd of Chapter 88-48 2001 Prentice Hall Business Publishing Management Accounting,3/E,Atkinson,Banker,Kaplan,and Young演讲完毕，谢谢观看！