博迪《金融学》课后习题答案-英文ch6_IM_1E.docVIP

Instructor’s Manual Chapter 6 Page PAGE104 CHAPTER 6 HOW TO ANALYZE INVESTMENT PROJECTS Objectives To show how to use discounted cash flow analysis to make investment decisions such as: Whether to enter a new line of business Whether to invest in equipment to reduce operating costs Outline TOC \f6.1 The Nature of Project Analysis 6.2 Where Do Investment Ideas Come From? 6.3 The Net Present Value Investment Rule 6.4 Estimating a Project’s Cash Flows 6.5 Cost of Capital 6.6 Sensitivity Analysis Using Spreadsheets 6.7 Analyzing Cost-Reducing Projects 6.8 Projects with Different Lives 6.9 Ranking Mutually Exclusive Projects 6.10 Inflation and Capital Budgeting Summarytc “Summary” The unit of analysis in capital budgeting is the investment project. From a finance perspective, investment projects are best thought of as consisting of a series of contingent cash flows over time, whose amount and timing are partially under the control of management. The objective of capital budgeting procedures is to assure that only projects which increase shareholder value (or at least do not reduce it) are undertaken. Most investment projects requiring capital expenditures fall into three categories: new products, cost reduction, and replacement. Ideas for investment projects can come from customers and competitors, or from within the firm’s own RD or production departments. Projects are often evaluated using a discounted cash flow procedure wherein the incremental cash flows associated with the project are estimated and their NPV is calculated using a risk-adjusted discount rate which should reflect the risk of the project. If the project happens to be a “mini-replica” of the assets currently held by the firm, then management should use the firm’s cost of capital in computing the project’s net present value. However, sometimes it may be necessary to use a discount rate which is totally unrelated to the cost of capital of the firm’s current operations. The correct