英文版公司理财课件chapter 7.ppt

COPYRIGHT?ZHULI Chapter 7 Net present value and other investment criteria Objectives Calculate the net present value of an investment Calculate the internal rate of return of a project and know what to look out for when using the internal rate of return rule Explain why the payback rule doesn’t always make shareholders better off Use the net present value rule to analyze three common problems that involve competing projects: (a) when to postpone an investment expenditure, (b) how to choose between projects with unequal lives, and (c) when to replace equipment Calculate the profitability index and use it to choose between projects when funds are limited Content Net present value Other investment criteria More examples of mutually exclusive projects Capital rationing A last look Net present value Net present value (NPV): present value of cash flows minus investment The net present value rule states that managers increase shareholders’ wealth by accepting all projects that are worth more than they cost. Therefore, they should accept all projects with a positive net present value The first two steps in calculating NPVs: forecasting the cash flows and estimating the opportunity cost of capital A factory costs $400,000. You reckon that it will produce an inflow after operating costs of $100,000 in year 1, $200,000 in year 2, and $300,000 in year 3. The opportunity cost of capital is 12 percent. Draw up a worksheet and use tables to calculate the NPV. Using the NPV rule to choose among projects Reinvestment assumption: the NPV rule assumes that all cash flows can be reinvested at the discount rate. Minimum Acceptance Criteria: Accept if NPV 0 Ranking Criteria: Choose the highest NPV Content Net present value Other investment criteria More examples of mutually exclusive projects Capital rationing A last look Payback Payback period: time until cash flows recover the initial investment in the project The payback rule states that a project should be accepted