《财务管理专业英语》教学课件07.pptVIP

7.1 Capital Investment decisions 7.2 Guidelines for Estimating Project Cash Flows 7.3 Investment Rules 7.4 Business Practice 7.5 Analyzing Project Risk 7.6 Project Selection with Resource Constrains 7.7 Qualitative Factors and the Selection of Projects 7.8 The Post-Audit CAPITAL INVESTMENT DECISIONS Project Classifications Expansion Projects vs. Replacement Projects Independent Projects vs. Mutually Exclusive Projects GUIDELINES FOR ESTIMATING PROJECT CASH FLOWS Identify Incremental Cash Flows Focus on After-tax Cash Flows Postpone Considering Financing Costs Other Cash Flow Considerations Sunk Costs Opportunity Costs Allocated Overhead Residual Value Side Effects INVESTMENT RULES Net Present Value (NPV) Profitability Index (PI) Internal Rate of Return (IRR) Payback Period (PP) Discounted Payback Period (DPP) BUSINESS PRACTICE Findings of a 1993 survey by Fortune 500 1. Every responding firm used some type of DCF method. In 1955, a similar study reported that only 4 percent of large companies used a DCF method. Thus, large firms’ usage of DCF methodology increased dramatically in the last half of the 20th century. 2. The payback period was used by 84 percent of Bierman’s surveyed companies. However, no company used it as the primary method, and most companies gave the greatest weight to a DCF method. In 1955, surveys similar to Bierman’s found that payback was the most important method. 3. In 1993, 99 percent of the Fortune 500 companies used IRR, while 85 percent used NPV. Thus, most firms actually used both methods. 4. An examination of surveys done by other authors led Bierman to conclude that there has been a strong trend toward the acceptance of academic recommendations, at least by large companies. BUSINESS PRACTICE A second 1993 study, conducted by Joe Walker, Richard Burns, and Chad Denson (WBD), focused on small companies. ANALYZING PROJECT RISK Sensitivity Analysis——Sensitivity analysis involves assessing t