CapitalBudgeting&Risk(英文版)jng.pptx

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1、Capital Budgeting&RiskInvest in highest NPV projectNeed Discount rate to get NPVCapital Budgeting&RiskInvest in highest NPV projectNeed Discount rate to get NPVUse CAPM to get discount rateCapital Budgeting&RiskInvest in highest NPV projectNeed Discount rate to get NPVUse CAPM to get discount rateMo

2、dify CAPM(account for proper risk)Capital Budgeting&Risk Modify CAPM (account for proper risk)Use COC unique to project,rather than Company COC Take into account Capital StructureCompany Cost of Capitalsimple approachCompany Cost of Capital(COC)is based on the average beta of the assetsThe average B

3、eta of the assets is based on the%of funds in each assetCompany Cost of Capitalsimple approachCompany Cost of Capital(COC)is based on the average beta of the assetsThe average Beta of the assets is based on the%of funds in each assetExample1/3 New Ventures B=2.01/3 Expand existing business B=1.31/3

4、Plant efficiency B=0.6AVG B of assets=1.3Capital Structure-the mix of debt&equity within a companyExpand CAPM to include CS R=rf+B(rm-rf)becomesRequity=rf+B(rm-rf)Capital StructureCapital StructureCOC =rportfolio =rassetsCapital StructureCOC =rportfolio =rassetsrassets=WACC=rdebt(D)+requity(E)(V)(V)

5、COC =rportfolio =rassetsrassets=WACC=rdebt(D)+requity(E)(V)(V)Bassets=Bdebt(D)+Bequity(E)(V)(V)Capital StructureCOC =rportfolio =rassetsrassets=WACC=rdebt(D)+requity(E)(V)(V)Bassets=Bdebt(D)+Bequity(E)(V)(V)Capital Structure requity=rf+Bequity(rm-rf)Capital StructureCOC =rportfolio =rassetsrassets=W

6、ACC=rdebt(D)+requity(E)(V)(V)Bassets=Bdebt(D)+Bequity(E)(V)(V)requity=rf+Bequity(rm-rf)IMPORTANTE,D,and V are all market valuesCapital Structure&COCExpected return(%)BdebtBassetsBequityRrdebt=8Rassets=12.2Requity=15Expected Returns and Betas prior to refinancingCapital BudgetingProblems with Capital

7、 BudgetingHow to Handle Problems with CB1-Sensativity Analysis 2-Break Even Analysis 3-Monte Carlo Simulation(pg 251-252)4-Decision Trees5-Certainty EquivalentMonte Carlo SimulationStep 1:Modeling the ProjectStep 2:Specifying ProbabilitiesStep 3:Simulate the Cash FlowsModeling ProcessDecision TreeDe

8、cision Trees960(.8)220(.2)930(.4)140(.6)800(.8)100(.2)410(.8)180(.2)220(.4)100(.6)+150(.6)+30(.4)+100(.6)+50(.4)-550NPV=?-250NPV=?-150 0orTurbopropPistonDecision Trees960(.8)220(.2)930(.4)140(.6)800(.8)100(.2)410(.8)180(.2)220(.4)100(.6)+150(.6)+30(.4)+100(.6)+50(.4)-550NPV=?-250NPV=?-150 0or8124566

9、60364148TurbopropPistonDecision Trees960(.8)220(.2)930(.4)140(.6)800(.8)100(.2)410(.8)180(.2)220(.4)100(.6)+150(.6)+30(.4)+100(.6)+50(.4)-550NPV=?-250NPV=?-150 0or812456660364148TurbopropPistonDecision Trees960(.8)220(.2)930(.4)140(.6)800(.8)100(.2)410(.8)180(.2)220(.4)100(.6)-550NPV=?-250NPV=?-150

10、0or812456660364148+150(.6)+30(.4)+100(.6)+50(.4)*450 331TurbopropPistonDecision Trees960(.8)220(.2)930(.4)140(.6)800(.8)100(.2)410(.8)180(.2)220(.4)100(.6)-550NPV=?-250NPV=?-150 0or812456660364148+150(.6)+30(.4)+100(.6)+50(.4)NPV=444.55NPV=888.18NPV=550.00NPV=184.55*450 331TurbopropPistonDecision Tr

11、ees960(.8)220(.2)930(.4)140(.6)800(.8)100(.2)410(.8)180(.2)220(.4)100(.6)-550NPV=?-250NPV=?-150 0or812456660364148+150(.6)+30(.4)+100(.6)+50(.4)NPV=444.55NPV=888.18NPV=550.00NPV=184.55*450 331TurbopropPistonDecision Trees960(.8)220(.2)930(.4)140(.6)800(.8)100(.2)410(.8)180(.2)220(.4)100(.6)812456660

12、364148+150(.6)710.73+30(.4)+100(.6)403.82+50(.4)-150 0*450 331orNPV=444.55NPV=888.18NPV=550.00NPV=184.55-550NPV=?-250NPV=?TurbopropPistonDecision Trees960(.8)220(.2)930(.4)140(.6)800(.8)100(.2)410(.8)180(.2)220(.4)100(.6)812456660364148+150(.6)710.73+30(.4)+100(.6)403.82+50(.4)-550NPV=96.12-250NPV=1

13、17.00-150 0*450 331orNPV=444.55NPV=888.18NPV=550.00NPV=184.55TurbopropPistonDecision Trees960(.8)220(.2)930(.4)140(.6)800(.8)100(.2)410(.8)180(.2)220(.4)100(.6)812456660364148+150(.6)710.73+30(.4)+100(.6)403.82+50(.4)-550NPV=96.12-250NPV=117.00-150 0*450 331orNPV=444.55NPV=888.18NPV=550.00NPV=184.55

14、TurbopropPistonRisk,DCF and CEQExampleProject A is expected to produce CF=$100 mil for each of three years.Given a risk free rate of 6%,a market premium of 8%,and beta of.75,what is the PV of the project?Risk,DCF and CEQExampleProject A is expected to produce CF=$100 mil for each of three years.Give

15、n a risk free rate of 6%,a market premium of 8%,and beta of.75,what is the PV of the project?Risk,DCF and CEQExampleProject A is expected to produce CF=$100 mil for each of three years.Given a risk free rate of 6%,a market premium of 8%,and beta of.75,what is the PV of the project?Risk,DCF and CEQEx

16、ampleProject A is expected to produce CF=$100 mil for each of three years.Given a risk free rate of 6%,a market premium of 8%,and beta of.75,what is the PV of the project?Now assume that the cash flows change,but are RISK FREE.What is the new PV?Risk,DCF and CEQExampleProject A is expected to produc

17、e CF=$100 mil for each of three years.Given a risk free rate of 6%,a market premium of 8%,and beta of.75,what is the PV of the project?.Now assume that the cash flows change,but are RISK FREE.What is the new PV?Risk,DCF and CEQExampleProject A is expected to produce CF=$100 mil for each of three yea

18、rs.Given a risk free rate of 6%,a market premium of 8%,and beta of.75,what is the PV of the project?.Now assume that the cash flows change,but are RISK FREE.What is the new PV?Since the 94.6 is risk free,we call it a Certainty Equivalent of the 100.Risk,DCF and CEQExampleProject A is expected to pro

19、duce CF=$100 mil for each of three years.Given a risk free rate of 6%,a market premium of 8%,and beta of.75,what is the PV of the project?.Now assume that the cash flows change,but are RISK FREE.What is the new PV?The difference between the 100 and the certainty equivalent(94.6)is 5.4%this%can be co

20、nsidered the annual premium on a risky cash flowRisk,DCF and CEQExampleProject A is expected to produce CF=$100 mil for each of three years.Given a risk free rate of 6%,a market premium of 8%,and beta of.75,what is the PV of the project?.Now assume that the cash flows change,but are RISK FREE.What i

21、s the new PV?Risk,DCF and CEQThe prior example leads to a generic certainty equivalent formula.960(.8)+150(.6)220(.2)-550 930(.4)+30(.4)140(.6)800(.8)-150 100(.2)+100(.6)or 0410(.8)180(.2)-250 220(.4)+50(.4)100(.6)TurbopropPiston 960(.8)+150(.6)220(.2)-550 930(.4)+30(.4)140(.6)800(.8)-150 100(.2)+10

22、0(.6)or 0410(.8)180(.2)-250 220(.4)+50(.4)100(.6)812456660364148TurbopropPiston 960(.8)+150(.6)220(.2)-550 930(.4)+30(.4)140(.6)800(.8)-150 100(.2)+100(.6)or 0410(.8)180(.2)-250 220(.4)+50(.4)100(.6)812456660364148TurbopropPistonNPV=888.18NPV=444.55NPV=550NPV=184.55 960(.8)+150(.6)220(.2)-550 930(.4

23、)+30(.4)140(.6)800(.8)-150 100(.2)+100(.6)or 0410(.8)180(.2)-250 220(.4)+50(.4)100(.6)812456660364148NPV=888.18NPV=444.55 *450NPV=550 331NPV=184.55710.73403.82TurbopropPiston 960(.8)+150(.6)220(.2)-550 930(.4)+30(.4)140(.6)800(.8)-150 100(.2)+100(.6)or 0410(.8)180(.2)-250 220(.4)+50(.4)100(.6)NPV=96.12NPV=117.00TurbopropPiston812456660364148NPV=888.18NPV=444.55 *450NPV=550 331NPV=184.55710.73403.82演讲完毕，谢谢观看！