第六章 投资决策的其他方法.pptx

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AcceptingpositiveNPVprojectsbenefitsshareholders.
NPVusescashflows
NPVusesallthecashflowsoftheproject
NPVdiscountsthecashflowsproperly
TheNetPresentValue(NPV)Rule
NetPresentValue(NPV)=TotalPVoffutureCF’s+InitialInvestment
EstimatingNPV:
:howmuch?andwhen?


MinimumAcceptanceCriteria:AcceptifNPV>0
RankingCriteria:ChoosethehighestNPV
GoodAttributesoftheNPVRule



Reinvestmentassumption:theNPVruleassumesthatallcashflowscanbereinvestedatthediscountrate.

Howlongdoesittaketheprojectto““payback”itsinitialinvestment?
PaybackPeriod=numberofyearstorecoverinitialcosts
MinimumAcceptanceCriteria:
setbymanagement
RankingCriteria:
setbymanagement
ThePaybackPeriodRule(continued)
Disadvantages:
Ignoresthetimevalueofmoney
Ignorescashflowsafterthepaybackperiod
Biasedagainstlong-termprojects
Requiresanarbitraryacceptancecriteria
AprojectacceptedbasedonthepaybackcriteriamaynothaveapositiveNPV
Advantages:
Easytounderstand
Biasedtowardliquidity

Howlongdoesittaketheprojectto““payback”itsinitialinvestmenttakingthetimevalueofmoneyintoaccount?
Bythetimeyouhavediscountedthecashflows,youmightaswellcalculatetheNPV.

Anotherattractivebutfatallyflawedapproach.
RankingCriteriaandMinimumAcceptanceCriteriasetbymanagement
Disadvantages:
Ignoresthetimevalueofmoney
Usesanarbitrarybenchmarkcutoffrate
Basedonbookvalues,notcashflowsandmarketvalues
Advantages:
Theaccountinginformationisusuallyavailable
Easytocalculate
(IRR)Rule
IRR:thediscountthatsetsNPVtozero
MinimumAcceptanceCriteria:
AcceptiftheIRRexceedstherequiredreturn.
RankingCriteria:
SelectalternativewiththehighestIRR
Reinvestmentassumption:
AllfuturecashflowsassumedreinvestedattheIRR.
Disadvantages:
Doesnotdistinguishbetweeninvestingandborrowing.
IRRmaynotexistortheremaybemultipleIRR
Problemswithmutuallyexclusiveinvestments
Advantages:
Easytounderstandandcommunicate
TheInternalRateofReturn:Example
Considerthefollowingproject:
0
1
2
3
$50
$100
$150
-$200
%