财务管理ch06资本预算课件

6-1Chapter 06Capital Budgeting Capital Budgeting TechniquesTechniques资本预算方法资本预算方法资本预算方法资本预算方法6-2Project Evaluation:Project Evaluation:Alternative MethodsAlternative Methodsuu Payback Period Payback Period(PBP(PBP投资回收期投资回收期投资回收期投资回收期)uu Internal Rate of Return Internal Rate of Return(IRR(IRR内含报酬率内含报酬率内含报酬率内含报酬率)uu Net Present Value Net Present Value(NPV(NPV净现值净现值净现值净现值)uu Profitability Index Profitability Index(PI(PI获利指数获利指数获利指数获利指数)6-3Proposed Project DataProposed Project DataJulie Miller is evaluating a new project Julie Miller is evaluating a new project for her firm,for her firm,Basket Wonders(BW)Basket Wonders(BW).She has determined that the after-tax She has determined that the after-tax cash flows for the project will be cash flows for the project will be$10,000;$12,000;$15,000;$10,000;$10,000;$12,000;$15,000;$10,000;and$7,000,and$7,000,respectively,for each of respectively,for each of the the Years 1 through 5Years 1 through 5.The initial.The initial cash outlay will be cash outlay will be$40,000$40,000.6-4Independent ProjectuuIndependent-A project whose acceptance(or rejection)does not prevent the acceptance of other projects under consideration.uFor this project,assume that it is independent of any other potential projects that Basket Wonders may undertake.6-5Payback Period(PBP)Payback Period(PBP)PBPPBP is the period of time is the period of time required for the cumulative required for the cumulative expected cash flows from an expected cash flows from an investment project to equal investment project to equal the initial cash outflow.the initial cash outflow.0 1 2 3 4 5 -40 K 10 K 12 K 15 K 10 K 7 K6-6(c)10 K 22 K 37 K 47 K 54 KPayback Solution(#1)Payback Solution(#1)PBPPBP =a a+(+(b b -c c)/)/d d=3 3+(+(4040-3737)/)/1010=3 3+(+(3 3)/)/1010=3.3 Years3.3 Years0 1 2 3 4 5 -40 K 10 K 12 K 15 K 10 K 7 KCumulativeInflows(a)(-b)(d)6-7Payback Solution(#2)Payback Solution(#2)PBPPBP =3 3+(+(3K 3K)/)/10K10K=3.3 Years3.3 YearsNote:Take absolute value of last Note:Take absolute value of last negative cumulative cash flow negative cumulative cash flow value.value.CumulativeCash Flows -40 K 10 K 12 K 15 K 10 K 7 K0 1 2 3 4 5-40 K -30 K -18 K -3 K 7 K 14 K6-8PBP Acceptance CriterionPBP Acceptance CriterionYes!Yes!The firm will receive back the The firm will receive back the initial cash outlay in less than 3.5 initial cash outlay in less than 3.5 years.years.3.3 Years 3.3 Years 3.5 Year Max3.5 Year Max.The management of Basket Wonders has set a maximum PBP of 3.5 years for projects of this type.Should this project be accepted?6-9PBP Strengths PBP Strengths and Weaknessesand WeaknessesStrengthsStrengths:uu Easy to use and Easy to use and understandunderstanduu Can be used as a Can be used as a measure of measure of liquidityliquidityWeaknesses:u Does not account for TVMu Does not consider cash flows beyond the PBPu 6-10Internal Rate of Return(IRR)Internal Rate of Return(IRR)IRR is the discount rate that equates the present value of the future net cash flows from an investment project with the projects initial cash outflow.CF1 CF2 CFn(1+IRR)1 (1+IRR)2 (1+IRR)n+.+ICO=6-11$15,000$10,000$7,000 IRR SolutionIRR Solution$10,000$12,000(1+IRR)1 (1+IRR)2Find the interest rate(IRR)that causes the discounted cash flows to equal$40,000.+$40,000=(1+IRR)3 (1+IRR)4 (1+IRR)56-12IRR Solution(Try 10%)IRR Solution(Try 10%)$40,000$40,000=$10,000(PVIF10%,1)+$12,000(PVIF10%,2)+$15,000(PVIF10%,3)+$10,000(PVIF10%,4)+$7,000(PVIF10%,5)=$10,000(.909)+$12,000(.826)+$15,000(.751)+$10,000(.683)+$7,000(.621)=$9,090+$9,912+$11,265+$6,830+$4,347 =$41,444$41,444 Rate is too low!Rate is too low!6-13IRR Solution(Try 15%)IRR Solution(Try 15%)$40,000$40,000=$10,000(PVIF15%,1)+$12,000(PVIF15%,2)+$15,000(PVIF15%,3)+$10,000(PVIF15%,4)+$7,000(PVIF15%,5)=$10,000(.870)+$12,000(.756)+$15,000(.658)+$10,000(.572)+$7,000(.497)=$8,700+$9,072+$9,870+$5,720+$3,479 =$36,841$36,841 Rate is too high!Rate is too high!6-14.10$41,444.05IRR$40,000$4,603.15$36,841($1,444)(0.05)$4,603IRR Solution(Interpolate)IRR Solution(Interpolate)$1,444XX=X=.0157IRR=.10+.0157=.1157 or 11.57%X/.05=1444/46036-15IRR Acceptance CriterionIRR Acceptance Criterion No!No!The firm will receive The firm will receive 11.57%11.57%for for each dollar invested in this project at each dollar invested in this project at a cost of a cost of 13%13%.IRRIRR Hurdle Rate Hurdle Rate The management of Basket Wonders has determined that the hurdle rate is 13%for projects of this type.Should this project be accepted?6-16IRR Strengths IRR Strengths and Weaknessesand Weaknesses StrengthsStrengths:uu Accounts for Accounts for TVMTVMuu Considers all Considers all cash flowscash flowsuu Less Less subjectivitysubjectivityWeaknesses:u Assumes all cash flows reinvested at the IRRu Difficulties with project rankings and Multiple IRRs6-17Net Present Value(NPV)Net Present Value(NPV)NPV is the present value of an investment projects net cash flows minus the projects initial cash outflow.CF1 CF2 CFn(1+k)1 (1+k)2 (1+k)n+.+-ICONPV=6-18Basket Wonders has determined that the appropriate discount rate(k)for this project is 13%.$10,000$7,000 NPV SolutionNPV Solution$10,000$12,000$15,000(1.13)1 (1.13)2 (1.13)3+-$40,000(1.13)4 (1.13)5NPV=+6-19NPV SolutionNPV SolutionNPVNPV=$10,000(PVIF13%,1)+$12,000(PVIF13%,2)+$15,000(PVIF13%,3)+$10,000(PVIF13%,4)+$7,000(PVIF13%,5)-$40,000$40,000NPVNPV=$10,000(.885)+$12,000(.783)+$15,000(.693)+$10,000(.613)+$7,000(.543)-$40,000$40,000NPVNPV=$8,850+$9,396+$10,395+$6,130+$3,801-$40,000$40,000 =-$1,428$1,4286-20NPV Acceptance CriterionNPV Acceptance Criterion No!No!The The NPVNPV is is negativenegative.This means.This means that the project is reducing shareholder that the project is reducing shareholder wealth.wealth.Reject Reject as as NPVNPV 0 0 The management of Basket Wonders has determined that the required rate is 13%for projects of this type.Should this project be accepted?6-21NPV Strengths NPV Strengths and Weaknessesand Weaknesses StrengthsStrengths:uu Cash flows Cash flows assumed to be assumed to be reinvested at the reinvested at the hurdle rate.hurdle rate.uu Accounts for TVM.Accounts for TVM.uu Considers all Considers all cash flows.cash flows.Weaknesses:u May not include managerial options embedded in the project.See Chapter 14.6-22Net Present Value ProfileNet Present Value ProfileDiscount Rate(%)0 3 6 9 12 15IRRNPV13%Sum of CFsPlot NPV for eachdiscount rate.Three of these points are easy now!Net Present Value$000s151050-46-23Profitability Index(PI)Profitability Index(PI)PI is the ratio of the present value of a projects future net cash flows to the projects initial cash outflow.CF1 CF2 CFn(1+k)1 (1+k)2 (1+k)n+.+ICOPI=PI=1+NPV/ICO Method#2:Method#1:6-24 PI Acceptance CriterionPI Acceptance Criterion No!No!The The PIPI is is less than 1.00less than 1.00.This.This means that the project is not profitable.means that the project is not profitable.Reject Reject as as PIPI 1.001.00 PI=$38,572/$40,000=.9643(Method#1,13-34)Should this project be accepted?6-25PI Strengths PI Strengths and Weaknessesand Weaknesses StrengthsStrengths:uuu Same as NPVSame as NPVuu Allows Allows comparison of comparison of different scale different scale projectsprojectsWeaknesses:uu Same as NPVu Provides only relative profitabilityu Potential Ranking Problems6-26Evaluation SummaryBasket Wonders Independent Project6-27Other Project RelationshipsuuMutually Exclusive-A project whose acceptance precludes the acceptance of one or more alternative projects.uuDependent-A project whose acceptance depends on the acceptance of one or more other projects.6-28Potential Problems Potential Problems Under Mutual ExclusivityUnder Mutual ExclusivityA.Scale of InvestmentA.Scale of InvestmentB.Cash-flow PatternB.Cash-flow PatternC.Project LifeC.Project Life Ranking of project proposals may create contradictory results.6-29A.Scale DifferencesA.Scale Differences Compare a small(S)and a large(L)project.NET CASH FLOWSProject S Project LEND OF YEAR 0 -$100 -$100,000 1 0 0 2$400$156,2506-30Scale DifferencesScale DifferencesCalculate the PBP,IRR,NPV10%,and PI10%.Which project is preferred?Why?Project IRR NPV PI S S 100%100%$231$231 3.31 3.31 L 25%L 25%$29,132$29,132 1.291.296-31B.Cash Flow PatternB.Cash Flow PatternLet us compare a decreasing cash-flow(D)project and an increasing cash-flow(I)project.NET CASH FLOWSProject D Project IEND OF YEAR 0 -$1,200 -$1,200 1 1,000 100 2 500 600 3 100 1,0806-32 D D 23%23%$198 1.17$198 1.17 I I 17%17%$198 1.17$198 1.17Cash Flow PatternCash Flow Pattern Calculate the IRR,NPV10%,and PI10%.Which project is preferred?Project IRR NPV PI6-33Examine NPV ProfilesExamine NPV ProfilesDiscount Rate(%)0 5 10 15 20 25-200 0 200 400 600IRRNPV10%Plot NPV for eachproject at variousdiscount rates.Net Present Value($)Project IProject IProject DProject D6-34Fishers Rate of IntersectionFishers Rate of IntersectionDiscount Rate($)0 5 10 15 20 25-200 0 200 400 600Net Present Value($)At k10%,I is best!At k10%,D is best!At k10%,D is best!6-35C.Project Life DifferencesC.Project Life Differences Let us compare a long life(X)project and a short life(Y)project.NET CASH FLOWSProject X Project YEND OF YEAR 0 -$1,000 -$1,000 1 0 2,000 2 0 0 3 3,375 06-36 X 50%X 50%$1,536 2.54$1,536 2.54 Y Y 100%100%$818 1.82$818 1.82Project Life DifferencesProject Life DifferencesCalculate the PBP,IRR,NPV10%,and PI10%.Which project is preferred?Why?Project IRR NPV PI6-37Another Way to Look at Things1.Adjust cash flows to a common terminal year if project“Y”will NOT be replaced.Compound Project Y,Year 1 10%for 2 years.Year 0 1 2 3CF -$1,000$0$0$2,420Results:IRR*=34.26%NPV=$818*Lower IRR from adjusted cash-flow stream.X is still Best.6-38Replacing Projects with Identical Projects2.Use Replacement Chain Approach(Appendix B)when project“Y”will be replaced.0 1 2 3-$1,000$2,000-$1,000$2,000 -1,000$2,000-1,000$2,000 -1,000$2,000-1,000$2,000-$1,000$1,000$1,000$2,000-$1,000$1,000$1,000$2,000Results:IRR=100%NPV*NPV*=$2,238.17$2,238.17*Higher NPV,but the same IRR.Y is BestY is Best.6-39Capital Rationing（资本配给）资本配给）Capital Rationing occurs when a constraint(or budget ceiling)is placed on the total size of capital expenditures during a particular period.（对总支出有限制）对总支出有限制）Example:Julie Miller must determine what investment opportunities to undertake for Basket Wonders(BW).She is limited to a maximum expenditure of$32,500 only for this capital budgeting period.6-40Available Projects for BW Project ICO IRR NPV PIA$500 18%$50 1.10 B 5,000 25 6,500 2.30 C 5,000 37 5,500 2.10 D 7,500 20 5,000 1.67 E12,500 26 500 1.04 F15,000 28 21,000 2.40 G17,500 19 7,500 1.43 H25,000 15 6,000 1.246-41Choosing by IRRs for BW Project ICO IRR NPV PIC$5,00037%$5,500 2.10 F15,000 28 21,000 2.40 E12,50026 500 1.04 B 5,00025 6,500 2.30 Projects C,F,and E have the three largest IRRs.The resulting increase in shareholder wealth is$27,000 with a$32,500 outlay.6-42Choosing by NPVs for BW Project ICO IRR NPV PI F$15,000 28%$21,000 2.40 G17,50019 7,500 1.43 B 5,00025 6,500 2.30Projects F and G have the two largest NPVs.The resulting increase in shareholder wealth is$28,500 with a$32,500 outlay.6-43Choosing by PIs for BW Project ICO IRR NPV PI F$15,000 28%$21,000 2.40B 5,000 25 6,500 2.30 C 5,000 37 5,500 2.10 D 7,500 20 5,000 1.67 G 17,500 19 7,500 1.43Projects F,B,C,and D have the four largest PIs.The resulting increase in shareholder wealth is$38,000 with a$32,500 outlay.6-44Summary of Comparison Method Projects Accepted Value Added PI F,B,C,and D$38,000 NPV F and G$28,500 IRRC,F,and E$27,000PI generates the greatest increase in shareholder wealth when a limited capital budget exists for a single period.