第六章投资决策的其他方法.pptxVIP

Chapter Outline6.1 Why Use Net Present Value?6.2 The Payback Period Rule6.3 The Discounted Payback Period Rule6.4 The Average Accounting Return6.5 The Internal Rate of Return6.6 Problems with the IRR Approach6.7 The Profitability Index6.8 The Practice of Capital Budgeting6.9 Summary and Conclusions6.1 Why Use Net Present Value?Accepting positive NPV projects benefits shareholders.NPV uses cash flowsNPV uses all the cash flows of the projectNPV discounts the cash flows properlyThe Net Present Value (NPV) RuleNet Present Value (NPV) = Total PV of future CF’s + Initial InvestmentEstimating NPV:1. Estimate future cash flows: how much? and when?2. Estimate discount rate3. Estimate initial costsMinimum Acceptance Criteria: Accept if NPV 0Ranking Criteria: Choose the highest NPVGood Attributes of the NPV Rule1. Uses cash flows2. Uses ALL cash flows of the project3. Discounts ALL cash flows properlyReinvestment assumption: the NPV rule assumes that all cash flows can be reinvested at the discount rate.6.2 The Payback Period RuleHow long does it take the project to “pay back〞 its initial investment?Payback Period = number of years to recover initial costsMinimum Acceptance Criteria: set by managementRanking Criteria: set by managementThe Payback Period Rule (continued)Disadvantages:Ignores the time value of moneyIgnores cash flows after the payback periodBiased against long-term projectsRequires an arbitrary acceptance criteriaA project accepted based on the payback criteria may not have a positive NPVAdvantages:Easy to understandBiased toward liquidity6.3 The Discounted Payback Period RuleHow long does it take the project to “pay back〞 its initial investment taking the time value of money into account?By the time you have discounted the cash flows, you might as well calculate the NPV.6.4 The Average Accounting Return RuleAnother attractive but fatally flawed approach.Ranking Criteria and Minimum Acceptance Criteria set by managementDisadvantages:Ignores the time value of