第六章 投资决策的其他方法PPT课件

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1、Click here for title第六章 投资决策的其他方法McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.6-16.1 Why Use Net Present Value?Accepting positive NPV projects benefits shareholders.NPV uses cash flowsNPV uses all the cash flows of the projectNPV discounts the cash flows prope

2、rlyMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.6-2The Net Present Value(NPV)RuleNet Present Value(NPV)=Total PV of future CFs+Initial InvestmentEstimating NPV:1.Estimate future cash flows:how much?and when?2.Estimate discount rate3.Estimate initial costsMinim

3、um Acceptance Criteria:Accept if NPV 0Ranking Criteria:Choose the highest NPVMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.6-3Good Attributes of the NPV Rule1.Uses cash flows2.Uses ALL cash flows of the project3.Discounts ALL cash flows properlyReinvestment ass

4、umption:the NPV rule assumes that all cash flows can be reinvested at the discount rate.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.6-46.2 The Payback Period RuleHow long does it take the project to“pay back”its initial investment?Payback Period=number of yea

5、rs to recover initial costsMinimum Acceptance Criteria:set by managementRanking Criteria:set by managementMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.6-5The Payback Period Rule(continued)Disadvantages:Ignores the time value of moneyIgnores cash flows after th

6、e payback periodBiased against long-term projectsRequires an arbitrary acceptance criteriaA project accepted based on the payback criteria may not have a positive NPVAdvantages:Easy to understandBiased toward liquidityMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserv

7、ed.6-66.3 The Discounted Payback Period RuleHow long does it take the project to“pay back”its initial investment taking the time value of money into account?By the time you have discounted the cash flows,you might as well calculate the NPV.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies

8、,Inc.All rights reserved.6-76.4 The Average Accounting Return RuleAnother attractive but fatally flawed approach.Ranking Criteria and Minimum Acceptance Criteria set by managementDisadvantages:Ignores the time value of moneyUses an arbitrary benchmark cutoff rateBased on book values,not cash flows a

9、nd market valuesAdvantages:The accounting information is usually availableEasy to calculateMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.6-8 6.5 The Internal Rate of Return(IRR)RuleIRR:the discount that sets NPV to zero Minimum Acceptance Criteria:Accept if the

10、 IRR exceeds the required return.Ranking Criteria:Select alternative with the highest IRRReinvestment assumption:All future cash flows assumed reinvested at the IRR.Disadvantages:Does not distinguish between investing and borrowing.IRR may not exist or there may be multiple IRR Problems with mutuall

11、y exclusive investmentsAdvantages:Easy to understand and communicateMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.6-9The Internal Rate of Return:ExampleConsider the following project:0123$50$100$150-$200The internal rate of return for this project is 19.44%McGr

12、aw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.6-10The NPV Payoff Profile for This ExampleIf we graph NPV versus discount rate,we can see the IRR as the x-axis intercept.IRR=19.44%McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.6

13、-116.6 Problems with the IRR ApproachMultiple IRRs.Are We Borrowing or Lending?The Scale Problem.The Timing Problem.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.6-12Multiple IRRsThere are two IRRs for this project:0 1 2 3$200$800-$200-$800100%=IRR20%=IRR1Which

14、 one should we use?McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.6-13The Scale ProblemWould you rather make 100%or 50%on your investments?What if the 100%return is on a$1 investment while the 50%return is on a$1,000 investment?McGraw-Hill/IrwinCopyright 2002 by

15、 The McGraw-Hill Companies,Inc.All rights reserved.6-14The Timing Problem0 1 2 3$10,000$1,000$1,000-$10,000Project A0 1 2 3$1,000$1,000$12,000-$10,000Project BThe preferred project in this case depends on the discount rate,not the IRR.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.

16、All rights reserved.6-15The Timing Problem10.55%=crossover rate12.94%=IRRB16.04%=IRRAMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.6-16Calculating the Crossover RateCompute the IRR for either project“A-B”or“B-A”10.55%=IRRMcGraw-Hill/IrwinCopyright 2002 by The M

17、cGraw-Hill Companies,Inc.All rights reserved.6-17Mutually Exclusive vs.Independent ProjectMutually Exclusive Projects:only ONE of several potential projects can be chosen,e.g.acquiring an accounting system.RANK all alternatives and select the best one.Independent Projects:accepting or rejecting one

18、project does not affect the decision of the other projects.Must exceed a MINIMUM acceptance criteria.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.6-186.7 The Profitability Index(PI)RuleMinimum Acceptance Criteria:Accept if PI 1Ranking Criteria:Select alternati

19、ve with highest PIDisadvantages:Problems with mutually exclusive investmentsAdvantages:May be useful when available investment funds are limitedEasy to understand and communicateCorrect decision when evaluating independent projectsMcGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All

20、rights reserved.6-196.8 The Practice of Capital BudgetingVaries by industry:Some firms use payback,others use accounting rate of return.The most frequently used technique for large corporations is IRR or NPV.McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.6-20Exa

21、mple of Investment RulesCompute the IRR,NPV,PI,and payback period for the following two projects.Assume the required return is 10%.Year Project AProject B0-$200-$1501$200$502$800$1003-$800$150McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.6-21Example of Investme

22、nt RulesProject AProject BCF0-$200.00-$150.00PV0 of CF1-3$241.92$240.80NPV=$41.92$90.80IRR=0%,100%36.19%PI=1.20961.6053 McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.6-22Example of Investment RulesPayback Period:Project AProject BTimeCFCum.CFCFCum.CF0-200-200-1

23、50-1501200050-100280080010003-8000150150Payback period for project B=2 years.Payback period for project A=1 or 3 years?McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.6-23Relationship Between NPV and IRRDiscount rateNPV for A NPV for B-10%-87.52234.770%0.00150.00

24、20%59.2647.9240%59.48-8.6060%42.19-43.0780%20.85-65.64100%0.00-81.25120%-18.93-92.52McGraw-Hill/IrwinCopyright 2002 by The McGraw-Hill Companies,Inc.All rights reserved.6-24Project AProject B($200)($100)$0$100$200$300$400-15%0%15%30%45%70%100%130%160%190%Discount ratesNPVIRR 1(A)IRR(B)NPV ProfilesIRR 2(A)Cross-over Rate