上海财经大学杨葵corporation finance-less07

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1、7-17-2Lesson7WhatIscapitalbudgeting?CapitalBudgetingEvaluationCriteria¢CapitalbudgetingcriteriaòPayback¢AnalysisofpotentialadditionstoòNetpresentvalue(NPV)òItltft(Internalrateofreturn(IRR)IRR)fixedassetsfixedassets.òProfitabilityindex(PI)¢Long-termdecisio

2、ns;involvelargeòModifiedinternalrateofreturn(MIRR)expenditures.¢CapitalbudgetingandCAPM¢Veryimportanttofirm’sfuture.¢Riskadjustmentbyprojectordivision¢Capitalrationing7-37-4StepsAnExampleofMutuallyExclusiveProjects1.Generateideas.2.EstimateCFs(inflows&out

3、flows).3.AssessriskinessofCFs.4.Determinek=WACC(adj.).5.FindNPVand/orIRR.BRIDGEVS.BOATTOGETPRODUCTSACROSSARIVER.6.AcceptifNPV>0and/orIRR>WACC.7-57-6NormalProjectInflow(+)orOutflow(-)inYearCost(negativeCF)followedbya012345NNNseriesofpositivecashinflows.-++

4、+++NNonnormalProject-++++-NNOneormoreoutflowsoccurafter---+++Ninflowshavebegun.Mostcommon:+++---NNCost(negativeCF),thenstringofpositiveCFs,thencosttoclose-++-+-NNproject.Nuclearpowerplant,stripmine.7-77-8Whatisthepaybackperiod?PaybackforProjectL(Long:Most

5、CFsinoutyears)01232.4Thenumberofyearsrequiredtorecoveraprojecttorecoveraprojects’scostcost,CF-100106080tCumul-100-90-30050orhowlongdoesittaketogetourmoneyback?Payback=2+30/80=2.375years.L7-97-10ProjectS(Short:CFscomequickly)StrengthsofPayback¢Providesanin

6、dicationofaproject’s01231.6riskandliquidity.¢Easytocalculateandunderstand.CFt-100705020Cumul-100-3002040WeaknessesofPaybackPayback=1+30/50=1.6years.¢IgnorestheTVM.S¢IgnoresCFsoccurringPaybackisatypeofbreakevenanalysis.afterthepaybackperiod.7-117-12Discoun

7、tedPayback:UsesdiscountedratherthanrawCFs.ApplytoProjectL.NetPresentValue(NPV)01232.7SumofthePVsofinflowsandoutflows.10%nCFtCFt-100106080NPV=å(1+k)t.t0t=0PVCFt-1009.0949.5960.11Cumul-100-90.91-41.3218.79Ifoneexpenditureatt=0,thenDisc.npayback=2+41.32/60.1

8、1=2.7years.CFtNPV=å(1+k)t-CF0.t=1Recoverinvest.+cap.costsin2.7years.7-137-14WhatisProjectL’sNPV?RationalefortheNPVMethodProjectL:0123NPV=PVinflows-Cost10%=Netgaininwealth.-100.001060809.09AcceptprojectifNPV>0.49.586