公司金融CapitalBudgeting.pptxVIP

Corporate FinanceClass 03 Capital BudgetingPeking University HSBC Business SchoolClass OutlineHow to estimate project cash flowsIdentifying cash flows that are relevantCapital budgeting using NPV approachValuing a single projectSpecial cases in capital budgetingProjects of equal livesProjects of unequal livesSetting the bid priceCapital BudgetingThe first application of the FCF concept is for Capital BudgetingDecisions as to which real assets the firm should purchaseCapital budgeting is a pure investment issue, different from the financing of the purchaseFirms have only finite capacity to purchase productive assets and these productive assets impact the value of the firmHow to decide which assets to purchase?Introducing Capital Budgeting DecisionsCapital BudgetingThe process of planning and managing a firm’s long-term investmentsDecisions as to which real assets a firm should acquireCapital Budgeting is an investment decision, not a financing decisionHow should we decide if an investment in real assets is worth undertaking?We can value a project by discounting its CFsBut how do we determine project’s CFs? Which CFs are relevant and which are not?In this chapter, we develop an analytical framework for making a variety of capital budgeting decisionsNotion of “incremental” CFsComputing project CFsCapital BudgetingMajor Project Evaluation methodsNet Present Value (NPV)The PV of a project’s cash flows, discounted at the opportunity cost of capital, net of the initial investmentPayback Period (PP)Expected number of years required to recover a project’s initial investmentInternal Rate of Return (IRR)The discount rate that sets the NPV of a project equal to 0Capital BudgetingEstimate project cash flows andcost of capitalFinancial analysisand Project selectionProject ImplementationProject Reviewand Post AuditThe process of Capital BudgetingThe starting point is to estimate the cash flows associated with the projectHow do we determine the project cash flows?What are the relev