公司理财14320.pptMcGraw-Hill/Irwin Copyright ? 2007 by The McGraw-panies, Inc. All rights reserved . Making Capital Investment Decisions Chapter 8 McGraw-Hill/Irwin Copyright ? 2007 by The McGraw-panies, Inc. All rights reserved . Present Value (NPV) Rule ? Net Present Value (NPV) = Total PV of future CF ’ s + Initial Investment ? Estimating NPV: 1. Estimate future cash flows: how much? and when? 2. Estimate discount rate 3. Estimate initial costs ? Minimum Acceptance Criteria: Accept if NPV > 0 ? Ranking Criteria: Choose the highest NPV McGraw-Hill/Irwin Copyright ? 2007 by The McGraw-panies, Inc. All rights reserved . The Internal Rate of Return ? IRR: the discount rate that sets NPV to zero ? Minimum Acceptance Criteria: ? Accept if the IRR exceeds the required return ? Ranking Criteria: ? Select alternative with the highest IRR ? Reinvestment assumption: ? All future cash flows assumed reinvested at the IRR McGraw-Hill/Irwin Copyright ? 2007 by The McGraw-panies, Inc. All rights reserved . Key Concepts and Skills ? Understand how to determine the relevant cash flows for various types of capital investments ? Be able pute depreciation expense for tax purposes ? Incorporate inflation into capital budgeting ? Understand the various methods puting operating cash flow ? Apply the Equivalent Annual Cost approach McGraw-Hill/Irwin Copyright ? 2007 by The McGraw-panies, Inc. All rights reserved . Chapter Outline Incremental Cash Flows The pany: An Example Inflation and Capital Budgeting Alternative Definitions of Cash Flow Investments of Unequal Lives: The Equivalent Annual Cost Method McGraw-Hill/Irwin Copyright ? 2007 by The McGraw-panies, Inc. All rights reserved . Incremental Cash Flows ? Cash flows matter — not accounting earnings. ? Sunk costs don ’ t matter. ? Opportunity costs matter. ? Side effects like synergy and erosion matter. ? Inflation matters. McGraw-Hill/Irwin Copyright ? 2007 by The McGraw-panies, Inc. All rights reserve
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