中级财务管理管理精品资料.ppt

CAPITAL INVESTMENT DECISION;3.1 Net Present Value ,Cash Flow Estimation 3.2 The Cost of Capital 3.3 Capital Budgeting: Decision Criteria 3.4 Project Analysis and Evaluation ;Present Value and The Opportunity Cost of Capital Cash Flow Estimation ;Companies Invest in a variety of real assets. These include tangible assets such as plant and machinery and intangible assets such as management contracts and patents. The object of the investment or capital budgeting, decision is to find real assets that are worth more than they cost. All shareholders of a firm will be made better off if managers follow the NPV rule—undertake positive NPV projects and reject negative NPV projects. ;We can calculate how much better off in today’s dollar the investment makes us by calculating the Net Present Value:.;In this chapter we will take the first, most basic steps toward understanding how assets are valued ;the first basic principle of finance a dollar today is worth more than a dollar tomorrow because the dollar today can be invested to start earning interest immediately.;The second basic financial principle: A safe dollar is worth more than a risky one.;Present Value Value today of a future cash flow.;;Discount Factor = DF = PV of $1 Discount Factors can be used to compute the present value of any cash flow.;;;Step 1: Forecast cash flows Cost of building = C0 = 350 Sale price in Year 1 = C1 = 400 Step 2: Estimate opportunity cost of capital If equally risky investments in the capital market offer a return of 7%, then Cost of capital = r = 7% ;Step 3: Discount future cash flows Step 4: Go ahead if PV of payoff exceeds investment ;C0 is an investment and therefore a cash outflow, will usually be a negative number.;Accept investments that have positive net present value;;;Higher risk projects require a higher rate of return Higher required rates of return cause lower PVs;;Accept investments that offer rates of return in excess of their opportu