公司财务管理-香港城市大学.pptVIP

3. Growth and Firm Valuation Investments, growth and firm value Suppose X = EBIT of current activities (perpetuity) I(t) = Investment at time t r* = Return on investment (firm specific) r = Required Rate of Return (from capital market) Assets-in-Place (AIP) and Investment (1) Present value of AIP: X/r NPV(t) of future investment: r*I(t)/r-I(t) (2) NPV(0) of future investment: Total Firm Value=(1)+(2) Growth Opportunities Assume a series of investment I(t) for t=1, 2,…, N, then Total Firm Value becomes: AIP Value + NPV of GO (very noisy!) ?If r*r, V0X/r Growth Firm r*=r, V0=X/r Expanding Firm r*0, V0X/r Shrinking Firm P/E Ratio and Growth ?If r*r, P/E1/r Growth Firm r*=r, P/E=1/r Expanding Firm r*0, P/E1/r Shrinking Firm (Negative growth firm) Get high r*, then the firm can grow! P/E ratio in the market has the information! Investment Return (r*) and Growth Rate FX swap contract contains multi-period forward transactions but with one forward price * * * * * Note, the example in the text assumes a perpetual project, so the PV of the tax shield is calculated assuming a perpetuity. The approach in this slide is comparable, but for a finite life project. ByDr. Xueping WuCity University of Hong KongApril 2012.hk/~efxpwu/ Corporate Financial Management --Capital Budgeting, Cost of Capital Firm Valuation --Managing Capital for Investment, Financing and Operation 1. Capital Budgeting A firm has existing and future projects Good managers maintain and launch good projects What are good projects? A project provides a stream of future cash flows We need the knowledge of finance to shift cash flows across time ? Discounted cash flows=Present value for today’s decision making ? “Good” projects = high present values Project Selection Rules Net Present Value Payback Period Discounted Payback Period The Internal Rate of Return The Profitability Index