making investment decisions with the net present value rule

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1、confirmingpagesPART1"""""CHAPTERVALUE6MakingInvestmentDecisionswiththeNetPresentValueRule!Inlate2003BoeingannounceditsintentiontoThesepredictionsneedtobecheckedforproduceandmarketthe787Dreamliner.Thedecisioncompletenessandaccuracy,andthenpulledtogethercommittedBoeinganditspartnerstoa$10b

2、illiontoproduceasinglesetofcash-flowforecasts.Thatcapitalinvestment,involving3millionsquarefeetofrequirescarefultrackingoftaxes,changesinworkingadditionalfacilities.Ifthetechnicalglitchesthathavecapital,inflation,andtheend-of-projectsalvagevaluesdelayedproductioncanbesortedout,itlooksasi

3、fofplant,property,andequipment.ThefinancialmanagerBoeingwillearnagoodreturnonthisinvestment.mustalsoferretouthiddencashflowsandtakecaretoAswewritethisinAugust2009,Boeinghasbookedrejectaccountingentriesthatlooklikecashflowsbutordersfor865Dreamliners,makingitoneofthemosttrulyarenot.success

4、fulaircraftlaunchesinhistory.OurfirsttaskinthischapteristolookathowtoHowdoesacompany,suchasBoeing,decidetodevelopasetofprojectcashflows.Wewillthenworkgoaheadwiththelaunchofanewairliner?Weknowthrougharealisticandcomprehensiveexampleofatheanswerinprinciple.Thecompanyneedstoforecastcapitali

5、nvestmentanalysis.theproject’scashflowsanddiscountthemattheWeconcludethechapterbylookingathowtheopportunitycostofcapitaltoarriveattheproject’sNPV.financialmanagershouldapplythepresentvalueAprojectwithapositiveNPVincreasesshareholderrulewhenchoosingbetweeninvestmentinplantandvalue.equipme

6、ntwithdifferenteconomiclives.Forexample,ButthosecashflowforecastsdonotarriveonasupposeyoumustdecidebetweenmachineYwithasilverplatter.First,thecompany’smanagersneed5-yearusefullifeandZwitha10-yearlife.Thepresentanswerstoanumberofbasicquestions.HowsoonvalueofY’slifetimeinvestmentandoperati

7、ngcostscanthecompanygettheplaneintoproduction?HowisnaturallylessthanZ’sbecauseZwilllasttwiceasmanyplanesarelikelytobesoldeachyearandatwhatlong.DoesthatnecessarilymakeYthebetterchoice?price?HowmuchdoesthefirmneedtoinvestinnewOfcoursenot.Youwillfindthat,whenyouarefacedprodu