第七章 货币预算 chapter7 capital budgeting.ppt

* * L:-100;10;60;80 S:-100;70;50;20 * * * * L:-100;10;60;80 S:-100;70;50;20 * * * * * * L:-100;10;60;80 S:-100;70;50;20 * * * Ch7 Basics of Capital Budgeting If profiles don’t cross, one project dominates the other. * Ch7 Basics of Capital Budgeting Reinvestment rate assumptions NPV method assumes CFs are reinvested at k, the opportunity cost of capital. IRR method assumes CFs are reinvested at IRR. * Ch7 Basics of Capital Budgeting Assuming CFs are reinvested at the opportunity cost of capital is more realistic, so NPV method is the best. * Ch7 Basics of Capital Budgeting For mutually exclusive projects, NPV should be used to make the choice. For independent projects, NPV and IRR are both ok. * Ch7 Basics of Capital Budgeting But in reality, managers seem to prefer IRR. Is there a better IRR measure? –Yes, MIRR. MIRR assumes cash flows are reinvested at the WACC. * Ch7 Basics of Capital Budgeting For a/m example, using EXCEL, we find that when k=7% (crossover rate 8.7%) MIRRL=15.89% MIRRS=15.39% So, project L will be chosen. The MIRR provides results consistent with NPV method. * Ch7 Basics of Capital Budgeting Summary of Ch.7 Calculation of payback periods, discounted payback periods, NPV, IRR. Capital budgeting rules for independent or mutually exclusive projects using: payback periods, discounted payback periods, NPV, IRR. * Ch7 Basics of Capital Budgeting Exercises: P.271 7-1,2,3,4,12a-d * * * * * * * * * * * * * * * * * * * * * * * * Ch7 Basics of Capital Budgeting 7-* 7-* CHAPTER 7 The Basics of Capital Budgeting Should we build this plant? * Ch7 Basics of Capital Budgeting What is capital budgeting? P.250 The process of planning expenditures on assets whose cash flows are expected to extend beyond one year. Analysis of potential additions to fixed assets(or other long term assets). Long-term decisions; involve large expenditures. Very important to firm’s future. * Ch7 Basics of Capital Budg