企业财务知识培训资料(ppt 24页)（英文版）gccw.pptx

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1、13-1Copyright 2001 by Harcourt,Inc.All rights reserved.CHAPTER 13Other Topics in Capital BudgetingnEvaluating projects with unequal livesnEvaluating projects with embedded optionsnValuing real options in projects13-2Copyright 2001 by Harcourt,Inc.All rights reserved.S and L are mutually exclusive an

2、d will be repeated.k=10%.Which is better?Expected Net CFsYearProject SProject L0($100,000)($100,000)159,00033,500259,00033,5003-33,5004-33,50013-3Copyright 2001 by Harcourt,Inc.All rights reserved.SLCF0-100,000-100,000CF159,00033,500Nj24I1010NPV2,3976,190Q.NPVL NPVS.Is L better?A.Cant say.Need repla

3、cement chain analysis.13-4Copyright 2001 by Harcourt,Inc.All rights reserved.nNote that Project S could be repeated after 2 years to generate additional profits.nUse replacement chain to calculate extended NPVS to a common life.nSince S has a 2-year life and L has a 4-year life,the common life is 4

4、years.13-5Copyright 2001 by Harcourt,Inc.All rights reserved.L:S:012310%33,5004012310%59,000433,50033,50033,500-100,00059,00059,00059,000-100,000NPVL=$6,190(already to Year 4)NPVS=$4,377(on extended basis)-100,000-41,00013-6Copyright 2001 by Harcourt,Inc.All rights reserved.What is real option analy

5、sis?nReal options exist when managers can influence the size and riskiness of a projects cash flows by taking different actions during the projects life.nReal option analysis incorporates typical NPV budgeting analysis with an analysis for opportunities resulting from managers decisions.13-7Copyrigh

6、t 2001 by Harcourt,Inc.All rights reserved.What are some examples of real options?nInvestment timing optionsnAbandonment/shutdown optionsnGrowth/expansion optionsnFlexibility options13-8Copyright 2001 by Harcourt,Inc.All rights reserved.An Illustration of Investment Timing Optionsn If we proceed wit

7、h Project L,its NPV is$6,190.(Recall the up-front cost was$100,000 and the subsequent CFs were$33,500 a year for four years).nHowever,if we wait one year,we will find out some additional information regarding output prices and the cash flows from Project L.13-9Copyright 2001 by Harcourt,Inc.All righ

8、ts reserved.Investment Timing(Continued)nIf we wait,there is a 50%chance the subsequent CFs will be$43,500 a year,and a 50%chance the subsequent CFs will be$23,500 a year.nIf we wait,the up-front cost will remain at$100,000.13-10Copyright 2001 by Harcourt,Inc.All rights reserved.Investment Timing De

9、cision Tree50%prob.50%prob.0 1 2 3 4 5Years -$100,000 43,500 43,500 43,500 43,500-$100,000 23,500 23,500 23,500 23,500At k=10%,the NPV at t=1 is:$37,889,if CFs are$43,500 per year,or -$25,508,if CFs are$23,500 per year,in which case the firm would not proceed with the project.13-11Copyright 2001 by

10、Harcourt,Inc.All rights reserved.Should we wait or proceed?nIf we proceed today,NPV=$6,190.nIf we wait one year,Expected NPV at t=1 is 0.5($37,889)+0.5(0)=$18,944.58,which is worth$18,944.58/(1.10)=$17,222.34 in todays dollars(assuming a 10%discount rate).nTherefore,it makes sense to wait.13-12Copyr

11、ight 2001 by Harcourt,Inc.All rights reserved.Issues to ConsidernWhats the appropriate discount rate?nNote that increased volatility makes the option to delay more attractive.lIf instead,there was a 50%chance the subsequent CFs will be$53,500 a year,and a 50%chance the subse-quent CFs will be$13,500

12、 a year,expected NPV next year(if we delay)would be:0.5($69,588)+0.5(0)=$34,794$18,944.57.13-13Copyright 2001 by Harcourt,Inc.All rights reserved.Factors to Consider When Deciding When to InvestnDelaying the project means that cash flows come later rather than sooner.nIt might make sense to proceed

13、today if there are important advantages to being the first competitor to enter a market.nWaiting may allow you to take advantage of changing conditions.13-14Copyright 2001 by Harcourt,Inc.All rights reserved.Abandonment/Shutdown OptionnProject Y has an initial,up-front cost of$200,000,at t=0.The pro

14、ject is expected to produce after-tax net cash flows of$80,000 for the next three years.nAt a 10%discount rate,what is Project Ys NPV?(More)0 1 2 3-$200,000 80,00080,000 80,000k=10%NPV=-$1,051.8413-15Copyright 2001 by Harcourt,Inc.All rights reserved.Abandonment/Shutdown(continued)nProject Ys A-T ne

15、t cash flows depend critically upon customer acceptance of the product.nThere is a 60%probability that the product will be wildly successful and produce A-T net cash flows of$150,000,and a 40%chance it will produce annual A-T cash flow of-$25,000.13-16Copyright 2001 by Harcourt,Inc.All rights reserv

16、ed.-$200,000Abandonment/Shutdown Decision Tree60%prob.40%prob.1 2 3Years0 150,000 150,000 150,000-25,000 -25,000 -25,000k=10%If the customer uses the product,NPV is$173,027.80.If the customer does not use the product,NPV is-$262,171.30.E(NPV)=0.6(173,027)+0.4(-262,171)=-1,051.84.13-17Copyright 2001

17、by Harcourt,Inc.All rights reserved.Abandonment/Shutdown(continued)nCompany does not have the option to delay the project.nCompany may abandon the project after a year,if the customer has not adopted the product.nIf the project is abandoned,there will be no operating costs incurred nor cash inflows

18、received after the first year.13-18Copyright 2001 by Harcourt,Inc.All rights reserved.NPV with the Abandonment OptionIf the customer uses the product,NPV is$173,027.80.If the customer does not use the product,NPV is-$222,727.27.E(NPV)=0.6(173,027)+0.4(-222,727)=14,725.77.-$200,00060%prob.40%prob.1 2

19、 3Years150,000 150,000 150,000-25,000k=10%013-19Copyright 2001 by Harcourt,Inc.All rights reserved.Is it reasonable to assume that the abandonment option does not affect the cost of capital?No,it is not reasonable to assume that the abandonment option has no effect on the cost of capital.The abandon

20、ment option reduces risk,and therefore reduces the cost of capital.13-20Copyright 2001 by Harcourt,Inc.All rights reserved.Growth OptionnProject Z has an initial up-front cost of$500,000.nThe project is expected to produce A-T cash inflows of$100,000 at the end of each of the next five years.Since t

21、he project carries a 12%cost of capital,it clearly has a negative NPV.nThere is a 10%chance the project will lead to subsequent opportunities that have an NPV of$3,000,000 at t=5,and a 90%chance of an NPV of-$1,000,000 at t=5.13-21Copyright 2001 by Harcourt,Inc.All rights reserved.100,000 100,000 10

22、0,000100,000 100,000NPV with the Growth Option-$500,00010%prob.90%prob.1 2 3 4 5Years0100,000 100,000 100,000 100,000 100,000-$1,000,000$3,000,000At k=12%,NPV of top branch (w/10%prob.)=$1,562,758.19.NPV of bottom branch (w/90%prob.)=-$139,522.38.13-22Copyright 2001 by Harcourt,Inc.All rights reserv

23、ed.NPV with the Growth Option(contd)nIf it turns out that the project has future opportunities with a negative NPV,the company would choose not to pursue them.nTherefore,the NPV of the bottom branch should include only the-$500,000 initial outlay and the$100,000 annual cash flows,which lead to an NP

24、V of-$139,522.38.13-23Copyright 2001 by Harcourt,Inc.All rights reserved.NPV with the Growth Option(contd)nThus,the expected value of this project should be:NPV=0.1($1,562,758)+0.9(-$139,522)=$30,706.13-24Copyright 2001 by Harcourt,Inc.All rights reserved.Flexibility OptionsFlexibility options exist when its worth spending money today,which enables you to maintain flexibility down the road.