2013秋研究生公司理财(第二讲)解读.ppt

Cash flows prior to the cutoff are implicitly discounted at a rate of zero, and cash flows after the cutoff are discounted using an infinite discount rate. See the text for the details of the case. * We assume that the ending market value of the capital investment at year 5 is $30,000. Capital gain is the difference between ending market value and adjusted basis of the machine. The adjusted basis is the original purchase price of the machine less depreciation. The capital gain is $24,240 (= $30,000 – $5,760). We will assume the incremental corporate tax for Baldwin on this project is 34 percent. Capital gains are now taxed at the ordinary income rate, so the capital gains tax due is $8,240 [0.34 * ($30,000 – $5,760)]. The after-tax salvage value is $30,000 – [0.34 * ($30,000 – $5,760)] = 21,760. This formalizes the present value calculation. Note that the assumed starting date is January 2005. This, however, provides a good beginning point for illustrating bond pricing in Excel, where you can specify exact beginning and ending dates. See slide 5.20 for a link to a ready-to-go Excel spreadsheet. Note that this example illustrates a premium bond (i.e., coupon rate is larger than the required yield). Note that this example illustrates a discount bond (i.e., coupon rate is smaller than the required yield). It may be good to point out that we have assumed the discount rate is constant; however, it could change across periods, or even across years. This type of problem generally separates the “A” students from the rest of the class. Point out that D1 / P0 is the dividend yield and g is the capital gains yield. A firm that pays out 100% of its earnings is essentially a zero growth firm since the retention rate is zero. This, however, does not imply the firm is not profitable. To find the PVGO, note that the firm retains $3.50 out of the first year’s earnings to invest at 20%. This results in a positive NPV of $0.875. A growing perpetuity of these positive NPVs is wor