财务管理预期报酬率和资本成本.ppt

Probability Distribution Approach Acceptance of a single project with a positive NPV depends on the dispersion of NPVs and the utility preferences of management. Project Evaluation Based on Total Risk Firm-Portfolio Approach B C A Indifference Curves STANDARD DEVIATION EXPECTED VALUE OF NPV Curves show “HIGH” Risk Aversion Firm-Portfolio Approach B C A Indifference Curves STANDARD DEVIATION EXPECTED VALUE OF NPV Curves show “MODERATE” Risk Aversion Firm-Portfolio Approach B C A Indifference Curves STANDARD DEVIATION EXPECTED VALUE OF NPV Curves show “LOW” Risk Aversion bj = bju [ 1 + (B/S)(1-TC) ] bj: Beta of a levered firm. bju: Beta of an unlevered firm (an all-equity financed firm). B/S: Debt-to-Equity ratio in Market Value terms. TC : The corporate tax rate. Adjusting Beta for Financial Leverage Adjusted Present Value (APV) is the sum of the discounted value of a project’s operating cash flows plus the value of any tax-shield benefits of interest associated with the project’s financing minus any flotation costs. Adjusted Present Value APV = Unlevered Project Value + Value of Project Financing Assume Basket Wonders is considering a new $425,000 automated basket weaving machine that will save $100,000 per year for the next 6 years. The required rate on unlevered equity is 11%. BW can borrow $180,000 at 7% with $10,000 after-tax flotation costs. Principal is repaid at $30,000 per year (+ interest). The firm is in the 40% tax bracket. NPV and APV Example What is the NPV to an all-equity-financed firm? NPV = $100,000[PVIFA11%,6] - $425,000 NPV = $423,054 - $425,000 NPV = -$1,946 Basket Wonders NPV Solution What is the APV? First, determine the interest expense. Int Yr 1 ($180,000)(7%) = $12,600 Int Yr 2 ( 150,000)(7%) = 10,500 Int Yr 3 ( 120,000)(7%) = 8,400 Int Yr 4 ( 90,000)(7%) = 6,300 Int Yr 5 ( 60,000)(7%) = 4,200 Int Yr 6 ( 30,000)(7%) = 2,100 Basket Wonders APV Solution Second, calculate the