财务管理基础斯坦利布洛克Chapter(11)

12ChapterTheCapitalBudgetingDecisionChapter12-OutlineWhatisCapitalBudgeting?3MethodsofEvaluatingInvestmentProposalsAccept/RejectDecisionNetPresentValueProfileSouthChinaUniversityofTech.FinancialManagement-Chap12I.WhatisCapitalBudgeting?(1)CapitalBudgetingDecisioninvolves:representsalong-terminvestmentdecisioninvolvestheplanningofexpendituresforaprojectwithalifeofmanyyearsusuallyrequiresalargeinitialcashoutflowwiththeexpectationoffuturecashinflowsusespresentvalueanalysisemphasizescashflowsratherthanincomeSouthChinaUniversityofTech.FinancialManagement-Chap12Figure12-1Capitalbudgetingprocedures—Page340Accounting,finance,engineeringCollectionofdataIdeadevelopmentEvaluation&DecisionmakingResultsAssignprobabilitiesReassignprobabilitiesReevaluationT12-1(1)(2)(3)(4)SouthChinaUniversityofTech.FinancialManagement-Chap12(2)AccountingFlowsversusCashFlowsAssumethatAlstonCorporationhas$50,000ofnewequipmenttobedepreciatedat$5,000peryear.Thefirmhas$20,000ofearningsbeforedepreciationandtaxesandpays35percentintaxes.TheinformationispresentedinTable12-1(next).SouthChinaUniversityofTech.FinancialManagement-Chap12Earningsbeforedepreciationandtaxes(cashinflow)...$20,000Depreciation(noncashexpense)....5,000Earningsbeforetaxes........15,000Taxes(cashoutflow)........5,250Earningsaftertaxes.........9,750Depreciation............+5,000Cashflow..............$14,750Cashinflow(EBDT).........$20,000Cashoutflow(taxes).........-5,250Cashflow..............$14,750T12-2Table12-1CashflowforAlstonCorporationAlternativeMethodReportedincomeSouthChinaUniversityofTech.FinancialManagement-Chap12Alston(continued)Thelogicofaddingbackdepreciationbecomesevengreaterifweconsidertheimpactof$20,000indepreciationfortheAlstonCorp.(Table12-2).Earningsbeforedepreciationandtaxes.$20,000Depreciation...........20,000Earningsbeforetaxes........0Taxes..............0Earningsaftertaxes.........0Depreciation...........+20,000Cashflow...........$20,000SouthChinaUniversityofTech.FinancialManagement-Chap12OnlyCashFlowisRelevantSouthChinaUniversityofTech.FinancialManagement-Chap12II.3MethodsofEvaluatingInvestmentProposalsBasicPrincipleThediscountrateusedinevaluatingcapitalprojectsshouldbetheweightedaveragecostofcapital(WACC).SouthChinaUniversityofTech.FinancialManagement-Chap12II.3MethodsofEvaluatingInvestmentProposalsPaybackMethod(PB)InternalRateofReturn(IRR)NetPresentValue(NPV)SouthChinaUniversityofTech.FinancialManagement-Chap12(1)PaybackMethodPaybackMethod(PB):computestheamountoftimerequiredtorecouptheinitialinvestmentacutoffperiodisestablishedWewillconsidereachofthesemethodsbyexaminingthetwoinvestmentalternativesshowninTable12-3(next).SouthChinaUniversityofTech.FinancialManagement-Chap12CashInflows(of$10,000investment)YearInvestmentAInvestmentB1$5,000$1,50025,0002,00032,0002,50045,00055,000Table12-3Investmentalternatives—Page342SouthChinaUniversityofTech.FinancialManagement-Chap12ThePaybackMethodBreakevenforInvestmentATimeBeginningCFforyearEnding1(10,000)5,000(5,000)2(5,000)5,0000SinceAreaches0attime2,thepaybackforAis2years.BreakevenforInvestmentBTimeBeginningCFforyearEnding1(10,000)1,500(8,500)2(8,500)2,000(6,500)3(6,500)2,500(4,000)4(4,000)5,0001,000Atthestartofyear3,Bhasanunrecoupedbalanceof$4,000.Ifweassumethatthe$5,000foryear4arrivesevenlythroughouttheyear,thenBreachesabalanceof0,4/5ofthewaythroughtheyear.Therefore,thepaybackforBis3.8years.4000/5000=0.8Thepaybackperiod=3+0.8=3.8Summary:MakingdecisionsusingPaybackInvestinanyprojectonwhichthepaybackislessthansomeestablishedcutofflevel.Ifyoumustchoosebetweentwoprojects,taketheprojectwiththelowercutoffperiod.Advantages:easytouse(“quickanddirty”approach)emphasizesliquidityDisadvantages:ignoresinflowsafterthecutoffperiodfailstoconsiderthetimevalueofmoneyisinferiortotheother2methodsSouthChinaUniversityofTech.FinancialManagement-Chap12(2)InternalRateofReturn(IRR)representsayieldonaninvestmentoraninterestrate,requirescalculatingtheinterestratethatequatesthecashoutflow(cost)withthecashinflowsItistheinterestratewherethecashoutflowsequalthecashinflows(orNPV=0)SouthChinaUniversityofTech.FinancialManagement-Chap12HowtofindIRRsolution?ThesimplestcasesMorecomplicatedcasesSouthChinaUniversityofTech.FinancialManagement-Chap12ThesimplestCasesPresentvalueofasingleamountForexample,aninvestmentof$100,theCFafteroneyearis$120,sotheIRR=20%PresentvalueofanannuityForexample,aninvestmentof$1,000,theCFperyearforfivefutureyearsis$244,IRR?SouthChinaUniversityofTech.FinancialManagement-Chap12IRRinthelattercase？1.FirstcalculatethePVIFAthroughdividedtheinvestmentbytheannuity.2.Thefactorforfiveyearsindicatestheyieldofthisinvestment.Stepsasfollows:$1,000/$244=4.1AccordingtotheAppendixD,IRR=7%SouthChinaUniversityofTech.FinancialManagement-Chap12MoreComplicatedCaseanunevencashinflowCashInflows(of$10,000investment)YearInvestmentAInvestmentB1$5,000$1,50025,0002,00032,0002,50045,00055,000SouthChinaUniversityofTech.FinancialManagement-Chap12WeneedtouseatrialanderrormethodtodeterminetheIRRanswer.STEP1.Tofindabeginningv