公司理财教学资料chap010

Chapter10MakingCapitalInvestmentDecisions2020/2/9ChapterOutline•ProjectCashFlows:AFirstLook•IncrementalCashFlows•ProFormaFinancialStatementsandProjectCashFlows•MoreaboutProjectCashFlow•AlternativeDefinitionsofOperatingCashFlow•SomeSpecialCasesofDiscountedCashFlowAnalysis10-22020/2/9RelevantCashFlows•Thecashflowsthatshouldbeincludedinacapitalbudgetinganalysisarethosethatwillonlyoccur(ornotoccur)iftheprojectisaccepted•Thesecashflowsarecalledincrementalcashflows•Thestand-aloneprinciple-analyzeeachprojectinisolationfromthefirm(onitsownmerits)byfocusingonincrementalcashflows10-32020/2/9AskingtheRightQuestion•Youshouldalwaysaskyourself“WillthiscashflowoccurONLYifweaccepttheproject?”–Iftheansweris“yes,”itshouldbeincludedintheanalysisbecauseitisincremental–Iftheansweris“partofit,”thenweshouldincludethepartthatoccursbecauseoftheproject–Iftheansweris“no,”itshouldnotbeincludedintheanalysisbecauseitwilloccuranyway10-42020/2/9CommonTypesofCashFlows•Sunkcosts–coststhathaveaccruedinthepast•Opportunitycosts–costsoflostoptions•Sideeffects–Positivesideeffects–benefitstootherprojects–Negativesideeffects–coststootherprojects•Changesinnetworkingcapital•Taxes(useafter-taxcashflows)•DonotconsiderFinancingCosts(partofR)10-52020/2/9ProFormaStatementsandCashFlow•Capitalbudgetingreliesheavilyonproformaaccountingstatements,particularlyincomestatements•Computingcashflows:–OperatingCashFlow(OCF)=EBIT+depreciation–taxes–OCF=Netincome+depreciation(whenthereisnointerestexpense)–CashFlowFromAssets(CFFA)=OCF–netcapitalspending(NCS)–changesinNWC10-62020/2/9Table10.1(p.310)ProFormaIncomeStatementSales(50,000unitsat$4.00/unit)$200,000VariableCosts($2.50/unit)125,000Grossprofit$75,000Fixedcosts12,000Depreciation($90,000/3)30,000EBIT$33,000Taxes(34%)11,220NetIncome$21,78010-72020/2/9Table10.2ProjectedCapitalRequirements(balancesheet)Year0123NWC$20,000$20,000$20,000$20,000NFA90,00060,00030,0000Total$110,000$80,000$50,000$20,00010-82020/2/92020/2/9Capitalspendingatthetimeofprojectinception(i.e.,the“initialoutlay”)includesthefollowingitems:+purchasepriceofthenewasset-sellingpriceoftheassetreplaced(ifapplicable)+costsofsitepreparation,setup,andstartup+/-increase(decrease)intaxliabilityduetosaleofoldassetatotherthanbookvalue=netcapitalspendingTable10.5(p.311)ProjectedTotalCashFlowsYear0123OCF$51,780$51,780$51,780ChangeinNWC-$20,00020,000NCS-$90,000CFFA-$110,00$51,780$51,780$71,78010-102020/2/9MakingTheDecision•Nowthatwehavethecashflows,wecanapplythetechniquesthatwelearnedinChapter9•UseformulasforPVofdiscountedcashflows•Shouldweacceptorrejecttheproject?10-112020/2/9Depreciation•ThedepreciationexpenseusedforcapitalbudgetingshouldbethedepreciationschedulerequiredbytheIRSfortaxpurposes•Depreciationitselfisanon-cashexpense;consequently,itisonlyrelevantbecauseitaffectstaxes•Depreciationtaxshield=DT–D=depreciationexpense–T=marginaltaxrate10-132020/2/9ComputingDepreciation•Straight-lineDepreciation–D=(Initialcost–salvage)/numberofyears–Veryfewassetsaredepreciatedstraight-linefortaxpurposes•MACRS(ModifiedAcceleratedCostRecoverySystem)p.316–Needtoknowwhichassetclassisappropriatefortaxpurposes–Multiplypercentagegivenintablebytheinitialcost–Depreciatetozero–Mid-yearconvention10-142020/2/9After-taxSalvage•After-taxsalvageisthecapitalrecoverycashflowatprojectend.•Ifthesalvagevalueisdifferentfromthebookvalueoftheasset,thenthereisataxeffect•Bookvalue=initialcost–accumulateddepreciation•After-taxsalvage•=salvage–Tax*(salvage–bookvalue)10-152020/2/9Example:DepreciationandAfter-taxSalvage•Youpurchaseequipmentfor$100,000,anditcosts$10,000tohaveitdeliveredandinstalled.(Whatisthecapex?)•Basedonpastinformation,youbelievethatyoucanselltheequipmentfor$17,000whenyouaredonewithitin6years.Thecompany’smarginaltaxrateis40%.•Whatisthedepreciationexpenseeachyearandtheafter-taxsalvageinyear6foreachofthefollowingsituations?10-162020/2/9Example:Straight-line•Supposetheappropriatedepreciationscheduleisstraight-line–D=(110,000–17,000)/6=15,500everyyearfor6years–BVinyear6=110,000–6(15,500)=17,000–After-taxsalvage=17,000-.4(17,000–17,000)=17,00010-172020/2/9Example:Three-yearMACRSp.316YearMACRSpercentD1.3333.3333(110,000)=36,6632.4445.4445(110,000)=48,8953.1481.1481(110,000)=16,2914.0741.0741(110,000)=8,151BVinyear6=110,000–36,663–48,895–16,291–8,151=0After-taxsalvage=17,000-.4(17,000–0)=$10,20010-182020/2/9Example:Seven-YearMACRSYearMACRSPercentD1.1429.1429(110,000)=15,7192.2449.2449(110,000)=26,9393.1749.1749(110,000)=19,2394.1249.1249(110,000)=13,7395.0893.0893(110,000)=9,8236.0892.0892(110,000)=9,812BVinyear6=110,000–15,719–26,939–19,239–13,739–9,823–9,812=14,729After-taxsalvage=17,000–.4(17,000–14,729)=16,091.6010-192020/2/9Example:ReplacementProblem•OriginalMachine–Initialcost=100,000–Annualdepreciation=9,000–Purchased5yearsago–BookValue=55,000–Salvagetoday=65,000–Salvagein5years=10,000•NewMachine–Initialcost=150,000–5-yearlife–Salvagein5years=0–Costsavings=50,000peryear–3-yearMACRSdepreciation•Requiredreturn=10%•Taxrate=40%10-202020/2/9ReplacementProblem–ComputingCashFlows•Remembert