公司理财-chapter-7

1、.1Chapter 7Net present value and other investment criteria.2ObjectivesnCalculate the net present value of an investmentnCalculate the internal rate of return of a project and know what to look out for when using the internal rate of return rulenExplain why the payback rule doesnt always make shareho

2、lders better offnUse the net present value rule to analyze three common problems that involve competing projects: (a) when to postpone an investment expenditure, (b) how to choose between projects with unequal lives, and (c) when to replace equipmentnCalculate the profitability index and use it choo

3、se between projects when funds are limited.3ContentnNet present valuenOther investment criterianMore examples of mutually exclusive projectsnCapital rationingnA last look.4nNet present value (NPV): present value of cash flows minus investment nThe net present value rule states that managers increase

4、 shareholders wealth by accepting all projects that are worth more than they cost. Therefore, they should accept all projects with a positive net present valuenThe first two steps in calculating NPVs: forecasting the cash flows and estimating the opportunity cost of capital .5Suppose that you have i

5、dentified a possible tenant who would be prepared to rent your office block for 3 years at a fixed annual rent of $16000. You forecast that after you have collected the third years rent the building could be sold for $450000Assume that the opportunity cost of capital is r = 7%.6When you need to choo

6、se among mutually exclusive projects, the decision rule is simple: calculate the NPV of each alternative, and choose the highest positive-NPV projectMutually exclusive projects: two or more projects that cannot be pursued simultaneously.7Net present value: 净现值Opportunity cost of capital: 资金的机会成本Mutu

7、ally exclusive projects: 互斥项目.8ContentnNet present valuenOther investment criterianMore examples of mutually exclusive projectsnCapital rationingnA last look.9PaybacknPayback period: time until cash flows recover the initial investment in the project nThe payback rule states that a project should be

8、 accepted if its payback period is less than a specified cutoff periodnTo use the payback rule, a firm has to decide on an appropriate cutoff period.10nAdvantages nSimplicitynDisadvantagesnPayback does not consider any cash flows that arrive after the payback periodnPayback does not consider the tim

9、e value of money.11Internal rate of returnnTwo rules for deciding whether to go ahead with an investment projectnThe NPV rule. Invest in any project that has a positive NPV when its cash flows are discounted at the opportunity cost of capitalnThe rate of return rule. Invest in any project offering a

10、 rate of return that is higher than the opportunity cost of capitalnThe rate of return or internal rate of return (IRR) is the discount rate at which NPV equals zero1.The rate or return rule will give the same answer as the NPV rule as long as the NPV of a project declines smoothly as the discount r

11、ate increase.12Suppose you rent out the office block for 3 years, the cash flows are as follows:Trial and error.13IRR = 12.96%You can accept a project if the rate of return exceeds the opportunity cost of capital.14nSome pitfalls with the internal rate of return rulenWhen NPV is higher as the discou

12、nt rate increases, a project is acceptable only if its internal rate of return is less than the opportunity cost of capital.15nWhen there are multiple changes in the sign of the cash flows, the IRR rule does not work, but the NPV rule always does.16nA high IRR is not an end in itself. You want proje

13、cts that increase the value of the firm. Projects that earn a good rate of return for a long time often have higher NPVs than those that offer high percentage rates of return but die young.17Payback period: 投资回收期Internal rate of return (IRR): 内含报酬率.18ContentnNet present valuenOther investment criter

14、ianMore examples of mutually exclusive projectsnCapital rationingnA last look.19Investment timingThe decision rule for investment timing is to choose the investment date that results in the highest net present value today.20Long- versus short-lived equipmentSuppose the firm is forced to choose betwe

15、en two machines, F and G. The two machines produce exactly the same product, the only way to choose between them is on the basis of costBut is the annual cost of using G lower than that of F?.21Equivalent annual annuity: the cash flow per period with the same present value as the cost of buying and

16、operating a machine.22The rule for comparing assets with different lives: select the machine that has the lowest equivalent annual annuity.23Equivalent annual annuity: 等额年金、平均年成本.24ContentnNet present valuenOther investment criterianMore examples of mutually exclusive projectsnCapital rationingnA la

17、st look.25nCapital rationing: limit set on the amount of funds available for investmentnSoft rationing is not imposed by investors, but imposed by top managementnHard rationing means that the firm actually cannot raise the money it needsnThe solution is to pick the projects that give the highest NPV per dollar investmentnThe ratio of net present value to initial investment is known as the profitability index.26Capital r