悉尼大学资本市场与公司财务课件Lecture4.ppt

This lecture The decision as to which projects should be undertaken by a corporation is known as the ‘investment decision’, and the process is known as ‘capital budgeting’ In this lecture we will examine 4 techniques: Net present value (NPV) Internal rate of return (IRR) Payback technique Average accounting rate of return (ARR) We will also compare these techniques and ascertain their strengths and weaknesses This lecture Given a project’s expected cash flows, it is easy to calculate its NPV, IRR, payback and ARR However, it can be difficult to estimate future cash flows (and there are uncertainties due to varying levels of risk between different projects) In this lecture we will: Develop procedures for estimating cash flows, including a discussion of issues such as cash flow identification, taxation and inflation Describe techniques for assessing the risk level Discuss some special cases in capital budgeting What is Capital Budgeting? When a corporation allocates funds to long-term investment projects, the outlay is made in the expectation of generating future cash flows In making the decision to invest in a project, the key consideration is whether or not the proposal provides an adequate return to investors The process used by a corporation to select projects to invest in is called ‘capital budgeting’ (or project evaluation) Capital budgeting is essentially the process used to decide on the optimum use of scarce resources What is Capital Budgeting? There are three fundamental stages in making capital budgeting decisions: Stage 1 is the forecasting of financial costs and benefits associated with a project Stage 2 involves the application of an investment evaluation technique to decide whether a project is acceptable, or optimal amongst a set of alternative projects Stage 3 is the ultimate decision to accept or reject a project Techniques The four best-known investment evaluation techniques will be discussed Two of these are based on the discounted cash