乔纳森伯克公司理财.ppt

6-31 Alternative Example 6.2 ? Solution – Payback A ? $80 ÷ $25 = 3.2 years – Project B ? $120 ÷ $30 = 4.0 years – Project C ? $150 ÷ $35 = 4.29 years 6-32 The Payback Rule (contd) ? Pitfalls: – Ignores the projects cost of capital and time value of money. – Ignores cash flows after the payback period. – Relies on an ad hoc decision criterion. 6-33 6.4 Choosing Between Projects ? Mutually Exclusive Projects – When you must choose only one project among several possible projects, the choice is mutually exclusive. – NPV Rule ? Select the project with the highest NPV . – IRR Rule ? Selecting the project with the highest IRR may lead to mistakes. 6-34 Textbook Example 6.3 6-35 Textbook Example 6.3 (contd) 6-36 IRR Rule and Mutually Exclusive Investments: Differences in Scale ? If a projects size is doubled, its NPV will double. This is not the case with IRR. Thus, the IRR rule cannot be used to compare projects of different scales. 6-37 IRR Rule and Mutually Exclusive Investments: Differences in Scale (contd) – Consider two of the projects from Example 6.3 Bookstore Coffee Shop Initial Investment $300,000 $400,000 Cash Flow Year 1 $63,000 $80,000 Annual Growth Rate 3% 3% Cost of Capital 8% 8% IRR 24% 23% NPV $960,000 $1,200,000 6-38 IRR Rule and Mutually Exclusive Investments: Timing of Cash Flows ? Another problem with the IRR is that it can be affected by changing the timing of the cash flows, even when the scale is the same. – IRR is a return, but the dollar value of earning a given return depends on how long the return is earned. ? Consider again the coffee shop and the music store investment in Example 6.3. Both have the same initial scale and the same horizon. The coffee shop has a lower IRR, but a higher NPV because of its higher growth rate. 6-39 IRR Rule and Mutually Exclusive Investments: Differences in Risk ? An IRR that is attractive for a safe project need not be attractive for a riskier project. ? Consider the investment in the