罗斯公司理财Chpt007ppt课件.ppt

CorporateFinanceRoss Westerfield Jaffe SixthEdition ChapterOutline 7 1IncrementalCashFlows7 2TheBaldwinCompany AnExample7 3InflationandCapitalBudgeting7 4InvestmentsofUnequalLives TheEquivalentAnnualCostMethod7 5SummaryandConclusions 7 1IncrementalCashFlows Cashflowsmatter notaccountingearnings Sunkcostsdon tmatter Incrementalcashflowsmatter Opportunitycostsmatter Sideeffectslikecannibalismanderosionmatter Taxesmatter wewantincrementalafter taxcashflows Inflationmatters CashFlows NotAccountingEarnings Considerdepreciationexpense Youneverwriteacheckmadeoutto depreciation Muchoftheworkinevaluatingaprojectliesintakingaccountingnumbersandgeneratingcashflows IncrementalCashFlows SunkcostsarenotrelevantJustbecause wehavecomethisfar doesnotmeanthatweshouldcontinuetothrowgoodmoneyafterbad Opportunitycostsdomatter JustbecauseaprojecthasapositiveNPVthatdoesnotmeanthatitshouldalsohaveautomaticacceptance SpecificallyifanotherprojectwithahigherNPVwouldhavetobepassedupweshouldnotproceed Sideeffectsmatter Erosionandcannibalismarebothbadthings Ifournewproductcausesexistingcustomerstodemandlessofcurrentproducts weneedtorecognizethat EstimatingCashFlows CashFlowsfromOperationsRecallthat OperatingCashFlow NetIncome DepreciationNetCapitalSpendingDon tforgetsalvagevalue aftertax ofcourse ChangesinNetWorkingCapitalRecallthatwhentheprojectwindsdown weenjoyareturnofnetworkingcapital InterestExpense Laterchapterswilldealwiththeimpactthattheamountofdebtthatafirmhasinitscapitalstructurehasonfirmvalue Fornow it senoughtoassumethatthefirm slevelofdebt henceinterestexpense isindependentoftheprojectathand 7 2TheBaldwinCompany AnExample Costsoftestmarketing alreadyspent 250 000 Currentmarketvalueofproposedfactorysite whichweown 150 000 Costofbowlingballmachine 100 000 depreciatedaccordingtoACRS5 yearlife Increaseinnetworkingcapital 10 000 Production inunits byyearduring5 yearlifeofthemachine 5 000 8 000 12 000 10 000 6 000 Priceduringfirstyearis 20 priceincreases2 peryearthereafter Productioncostsduringfirstyearare 10perunitandincrease10 peryearthereafter Annualinflationrate 5 WorkingCapital initially 10 000changeswithsales TheWorksheetforCashFlowsoftheBaldwinCompany Year0Year1Year2Year3Year4Year5Investments 1 Bowlingballmachine 100 0021 76 2 Accumulated20 0052 0071 2082 7294 24depreciation 3 Adjustedbasisof80 0048 0028 8017 285 76machineafterdepreciation endofyear 4 Opportunitycost 150 00150 00 warehouse 5 Networkingcapital10 0010 0016 3224 9721 220 endofyear 6 Changeinnet 10 00 6 32 8 653 7521 22workingcapital 7 Totalcashflowof 260 00 6 32 8 653 75192 98investment 1 4 6 Weassumethattheendingmarketvalueofthecapitalinvestmentatyear5is 30 000 Capitalgainisthedifferencebetweenendingmarketvalueandadjustedbasisofthemachine Theadjustedbasisistheoriginalpurchasepriceofthemachinelessdepreciation Thecapitalgainis 24 240 30 000 5 760 WewillassumetheincrementalcorporatetaxforBaldwinonthisprojectis34percent Capitalgainsarenowtaxedattheordinaryincomerate sothecapitalgainstaxdueis 8 240 0 34 30 000 5 760 Theafter taxsalvagevalueis 30 000 0 34 30 000 5 760 21 760 thousands Allcashflowsoccurattheendoftheyear TheWorksheetforCashFlowsoftheBaldwinCompany Attheendoftheproject thewarehouseisunencumbered sowecansellitifwewantto thousands Allcashflowsoccurattheendoftheyear Year0Year1Year2Year3Year4Year5Investments 1 Bowlingballmachine 100 0021 76 2 Accumulated20 0052 0071 2082 7294 24depreciation 3 Adjustedbasisof80 0048 0028 8017 285 76machineafterdepreciation endofyear 4 Opportunitycost 150 00150 00 warehouse 5 Networkingcapital10 0010 0016 3224 9721 220 endofyear 6 Changeinnet 10 00 6 32 8 653 7521 22workingcapital 7 Totalcashflowof 260 00 6 32 8 653 75192 98investment 1 4 6 TheWorksheetforCashFlowsoftheBaldwinCompany continued Year0Year1Year2Year3Year4Year5Income 8 SalesRevenues100 00163 00249 72212 20129 90 thousands Allcashflowsoccurattheendoftheyear Recallthatproduction inunits byyearduring5 yearlifeofthemachineisgivenby 5 000 8 000 12 000 10 000 6 000 Priceduringfirstyearis 20andincreases2 peryearthereafter Salesrevenueinyear3 12 000 20 1 02 2 12 000 20 81 249 720 TheWorksheetforCashFlowsoftheBaldwinCompany continued Year0Year1Year2Year3Year4Year5Income 8 SalesRevenues100 00163 00249 72212 20129 90 9 Operatingcosts50 0088 00145 20133 1087 84 thousands Allcashflowsoccurattheendoftheyear Again production inunits byyearduring5 yearlifeofthemachineisgivenby 5 000 8 000 12 000 10 000 6 000 Productioncostsduringfirstyear perunit are 10and increase10 peryearthereafter Productioncostsinyear2 8 000 10 1 10 1 88 000 TheWorksheetforCashFlowsoftheBaldwinCompany continued Year0Year1Year2Year3Year4Year5Income 8 SalesRevenues100 00163 00249 72212 20129 90 9 Operatingcosts50 0088 00145 20133 1087 84 10 Depreciation20 0032 0019 2011 5211 52 thousands Allcashflowsoccurattheendoftheyear DepreciationiscalculatedusingtheAcceleratedCostRecoverySystem shownatright Ourcostbasisis 100 000Depreciationchargeinyear4 100 000 1152 11 520 TheWorksheetforCashFlowsoftheBaldwinCompany continued Year0Year1Year2Year3Year4Year5Income 8 SalesRevenues100 00163 00249 72212 20129 90 9 Operatingcosts50 0088 00145 20133 1087 84 10 Depreciation20 0032 0019 2011 5211 52 11 Incomebeforetaxes30 0043 2085 3267 5830 54 8 9 10 12 Taxat34percent10 2014 6929 0122 9810 38 13 NetIncome19 8028 5156 3144 6020 16 thousands Allcashflowsoccurattheendoftheyear IncrementalAfterTaxCashFlowsoftheBaldwinCompany 7 3InflationandCapitalBudgeting Inflationisanimportantfactofeconomiclifeandmustbeconsideredincapitalbudgeting Considertherelationshipbetweeninterestratesandinflation oftenreferredtoastherelationship 1 NominalRate 1 RealRate 1 InflationRate Forlowratesofinflation thisisoftenapproximatedasRealRate NominalRate InflationRateWhilethenominalrateintheU S hasfluctuatedwithinflation mostofthetimetherealratehasexhibitedfarlessvariancethanthenominalrate Whenaccountingforinflationincapitalbudgeting onemustcomparerealcashflowsdiscountedatrealratesornominalcashflowsdiscountedatnominalrates ExampleofCapitalBudgetingunderInflation SonyInternationalhasaninvestmentopportunitytoproduceanewstereocolorTV TherequiredinvestmentonJanuary1ofthisyearis 32million Thefirmwilldepreciatetheinvestmenttozerousingthestraight linemethod Thefirmisinthe34 taxbracket ThepriceoftheproductonJanuary1willbe 400perunit Thepricewillstayconstantinrealterms Laborcostswillbe 15perhouronJanuary1 Thewillincreaseat2 peryearinrealterms Energycostswillbe 5perunit theywillincrease3 peryearinrealterms Theinflationrateis5 Revenuesarereceivedandcostsarepaidatyear end ExampleofCapitalBudgetingunderInflation Therisklessnominaldiscountrateis4 Therealdiscountrateforcostsandrevenuesis8 CalculatetheNPV ExampleofCapitalBudgetingunderInflation Thedepreciationtaxshieldisarisk freenominalcashflow andisthereforediscountedatthenominalrisklessrate Costofinvestmenttoday 32 000 000Projectlife 4yearsAnnualdepreciationexpense Depreciationtaxshield 8 000 000 34 2 720 000 ExampleofCapitalBudgetingunderInflation RiskyRealCashFlowsPrice 400perunitwithzerorealpriceincreaseLabor 15perhourwith2 realwageincreaseEnergy 5perunitwith3 realenergycostincreaseYear1After taxRealRiskyCashFlows After taxrevenues 400 100 000 1 34 26 400 000After taxlaborcosts 15 2 000 000 1 02 1 34 20 196 000After taxenergycosts 5 2 00 000 1 03 1 34 679 800After taxnetoperatingCF 26 400 000 20 196 000 679 800 5 524 200 ExampleofCapitalBudgetingunderInflation 5 524 200 31 499 886 31 066 882 17 425 007 32 000 000 01234 YearOneAfter taxrevenues 400 100 000 1 34 26 400 000YearOneAfter taxlaborcosts 15 2 000 000 1 02 1 34 20 196 000YearOneAfter taxenergycosts 5 2 00 000 1 03 1 34 679 800YearOneAfter taxnetoperatingCF 5 524 200 ExampleofCapitalBudgetingunderInflation TheprojectNPVcannowbecomputedasthesumofthePVofthecost thePVoftheriskycashflowsdiscountedattheriskyrateandthePVoftherisk freecashflowsdiscountedattherisk freediscountrate NPV 32 000 000 69 590 868 9 873 315 47 464 183 7 4InvestmentsofUnequalLives TheEquivalentAnnualCostMethod TherearetimeswhenapplicationoftheNPVrulecanleadtothewrongdecision Considerafactorywhichmusthaveanaircleaner Theequipmentismandatedbylaw sothereisno doingwithout Therearetwochoices The Cadillaccleaner costs 4 000today hasannualoperatingcostsof 100andlastsfor10years The cheapercleaner costs 1 000today hasannualoperatingcostsof 500andlastsfor5years Whichoneshouldwechoose 7 4InvestmentsofUnequalLives TheEquivalentAnnualCostMethod Atfirstglance thecheapcleanerhasthelowerNPV r 10 ThisoverlooksthefactthattheCadillaccleanerlaststwiceaslong Whenweincorporatethat theCadillaccleanerisactuallycheaper 7 4InvestmentsofUnequalLives TheEquivalentAnnualCostMethod TheCadillaccleanertimelineofcashflows The cheapercleaner timelineofcashflowsovertenyears InvestmentsofUnequalLives ReplacementChainAssumption Bothprojectscanandwillberepeated MatchingCycleRepeatprojectsuntiltheybeginandendatthesametime likewejustdidwiththeaircleaners ComputeNPVforthe repeatedprojects TheEquivalentAnnualCostMethod InvestmentsofUnequalLives EAC TheEquivalentAnnualCostMethodTheEquivalentAnnualCostisthevalueofthelevelpaymentannuitythathasthesameNPVasouroriginalsetofcashflows NPV EAC ArTForexample theEACfortheCadillacaircleaneris 750 98 TheEACforthecheaperaircleaneris 763 80whichconfirmsourearlierdecisiontorejectit ExampleofReplacementProjects ConsideraBelgianDentist soffice heneedsanautoclavetosterilizehisinstruments Hehasanoldonethatisinuse butthemaintenancecostsarerisingandsoisconsideringreplacingthisindispensablepieceofequipment NewAutoclaveCost 3 000today Maintenancecost 20peryearResalevalueafter6years 1 200NPVofnewautoclave atr 10 EACofnewautoclave 553 29 ExampleofReplacementP