武汉大学公司金融课件.doc

PAGE 1 PAGE 2 PROJECT INVESTMENT EVALUATION Cash flowsNOT PROFITS. The project’s incremental cash flowthe difference between a firm’s future cash flows with a project or without a project. Sunk Costs. Opportunity costs Allocated overhead charges for head office services, or heat or power, etconly true incremental costs caused by the project should be recognized. All incidental or side effects, such as erosion or increase of sales from or to other products of the firm. Additional working capital may be recovered at the end of the project. Salvage or resale value of the capital item. Debt interest or the repayment of a loan. Definitions of Operating Cash Flow NPV = PVOCF - PV?NWC - PV?Capital OCF = EBIT + Depreciation - Taxes S = Sales C = Operating costs D = Depreciation T = Taxes t = Marginal Tax Rate OCF = EBIT + D – T EBIT = S – C – D T = (S – C – D)( t ) OCF = (S – C – D) + D – (S – C – D)( t ) = (S – C ) - (S – C – D)( t ) = (S – C ) - (S – C)( t ) + Dt OCF = (S – C )( 1 – t) + Dt NPV = PV(S – C )( 1 – t) + PVDt - PV?NWC - PV?Capital NOTE ON NOTATION: S = Sales C = Operating Costs Or S = Salvage or Disposal Cost C = Investment cost added to the pool Present Value of the Tax Shield on CCA CCA(Capital Cost Allowance) tax shields is usually a percentage of the UCC( Undepreciated Capital Cost), continue in perpetuity as long as there are assets remaining in the CCA class. Let: C = investment cost added to the pool d = CCA rate for the asset class t = firm’s marginal tax rate r = discount rate S = salvage or disposal cost n = effective asset life in years (salvage point) No salvage PV0 = D1 r – g Where: C = investment d = CCA rate for the class t = tax rate PVtax shield = Cdt r + d Salvage Sdt * __1_ r + d (1 + r)n PVtax shield = Cdt - Sdt * 1__ r + d r + d (1+r)n Example: Total Cash Flow From Assets = OCF - ?NWC - ?Capital NPV = PVOCF - PV?