CHAPTER 18 INTERNATIONAL CAPITAL BUDGETING.doc

《CHAPTER 18 INTERNATIONAL CAPITAL BUDGETING.doc》由会员上传分享，免费在线阅读，更多相关内容在教育资源-天天文库。

1、CHAPTER18INTERNATIONALCAPITALBUDGETINGSUGGESTEDANSWERSANDSOLUTIONSTOEND-OF-CHAPTERQUESTIONSANDPROBLEMSQUESTIONS1.Whyiscapitalbudgetinganalysissoimportanttothefirm?Answer:Thefundamentalgoalofthefinancialmanageristomaximizeshareholderwealth.Capitalinvestmentswith

2、positiveNPVorAPVcontributetoshareholderwealth.Additionally,capitalinvestmentsgenerallyrepresentlargeexpendituresrelativetothevalueoftheentirefirm.Theseinvestmentsdeterminehowefficientlyandexpensivelythefirmwillproduceitsproduct.Consequently,capitalexpendituresd

3、eterminethelong-runcompetitivepositionofthefirmintheproductmarketplace.2.WhatistheintuitionbehindtheNPVcapitalbudgetingframework?Answer:TheNPVframeworkisadiscountedcashflowtechnique.Themethodologycomparesthepresentvalueofallcashinflowsassociatedwiththeproposedp

4、rojectversusthepresentvalueofallprojectoutflows.Ifinflowsareenoughtocoveralloperatingcostsandfinancingcosts,theprojectaddswealthtoshareholders.3.Discusswhatismeantbytheincrementalcashflowsofacapitalproject.Answer:Incrementalcashflowsaredenotedbythechangeintotal

5、firmcashinflowsandcashoutflowsthatcanbetraceddirectlytotheprojectunderanalysis.4.Discussthenatureoftheequationsequence,Equation18.2ato18.2f.Answer:Theequationsequenceisapresentationofincrementalannualcashflowsassociatedwithacapitalexpenditure.Equation18.2aprese

6、ntsthemostdetailedexpressionforcalculatingthesecashflows;itiscomposedofthreeterms.Equation18.2bshowsthatthesethreetermsare:i)incrementalnetprofitassociatedwiththeproject;ii)incrementaldepreciationallowance;and,iii)incrementalafter-taxinterestexpenseassociatedwi

7、ththeborrowingcapacitycreatedbytheproject.Note,theincremental“netprofit”isnotaccountingprofitbutrathernetcashactuallyavailableforshareholders.Equation18.2cIM-16cancelsouttheafter-taxinteresttermin18.2a,yieldingasimplerformula.Equation18.2dshowsthatthefirsttermi

8、n18.2cisgenerallycalledafter-taxnetoperatingincome.Equation18.2eyieldsyetacomputationallysimplerformulabycombiningthedepreciationtermsof18.2c.Equation18.2fshowsthatthefirstt