财务管理基础13版_14课件.pptVIP

Simulation Approach Each variable is assigned an appropriate probability distribution. The distribution for the selling price of baskets created by Basket Wonders might look like: $20 $25 $30 $35 $40 $45 $50 0.02 0.08 0.22 0.36 0.22 0.08 0.02 The resulting proposal value is dependent on the distribution and interaction of EVERY variable listed on slide 14.31. Simulation Approach Each proposal will generate an internal rate of return. The process of generating many, many simulations results in a large set of internal rates of return. The distribution might look like the following: INTERNAL RATE OF RETURN (%) PROBABILITY OF OCCURRENCE Combining projects in this manner reduces the firm risk due to diversification. Contribution to Total Firm Risk: Firm-Portfolio Approach CASH FLOW TIME TIME TIME Proposal A Proposal B Combination of Proposals A and B NPVP = S ( NPVj ) NPVP is the expected portfolio NPV, NPVj is the expected NPV of the jth NPV that the firm undertakes, m is the total number of projects in the firm portfolio. Determining the Expected NPV for a Portfolio of Projects m j=1 sP = S S sjk sjk is the covariance between possible NPVs for projects j and k, s jk = s j s k r jk . sj is the standard deviation of project j, sk is the standard deviation of project k, rjk is the correlation coefficient between projects j and k. Determining Portfolio Standard Deviation m j=1 m k=1 E: Existing Projects 8 Combinations E E + 1 E + 1 + 2 E + 2 E + 1 + 3 E + 3 E + 2 + 3 E + 1 + 2 + 3 A, B, and C are dominating combinations from the eight possible. Combinations of Risky Investments A B C E Standard Deviation Expected Value of NPV Managerial (Real) Options Management flexibility to make future decisions that affect a project’s expected cash flows, life, or future acceptance. Project Worth = NPV + Option(s) Value Managerial (Real) Options Expand (or contract) Allows the firm to expand (contract)