第六章 投资决策的其他方法

McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.6-0ChapterOutline6.1WhyUseNetPresentValue?6.2ThePaybackPeriodRule6.3TheDiscountedPaybackPeriodRule6.4TheAverageAccountingReturn6.5TheInternalRateofReturn6.6ProblemswiththeIRRApproach6.7TheProfitabilityIndex6.8ThePracticeofCapitalBudgeting6.9SummaryandConclusionsMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.6-16.1WhyUseNetPresentValue?•AcceptingpositiveNPVprojectsbenefitsshareholders.NPVusescashflowsNPVusesallthecashflowsoftheprojectNPVdiscountsthecashflowsproperlyMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.6-2TheNetPresentValue(NPV)Rule•NetPresentValue(NPV)=TotalPVoffutureCF’s+InitialInvestment•EstimatingNPV:–1.Estimatefuturecashflows:howmuch?andwhen?–2.Estimatediscountrate–3.Estimateinitialcosts•MinimumAcceptanceCriteria:AcceptifNPV0•RankingCriteria:ChoosethehighestNPVMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.6-3GoodAttributesoftheNPVRule•1.Usescashflows•2.UsesALLcashflowsoftheproject•3.DiscountsALLcashflowsproperly•Reinvestmentassumption:theNPVruleassumesthatallcashflowscanbereinvestedatthediscountrate.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.6-46.2ThePaybackPeriodRule•Howlongdoesittaketheprojectto“payback”itsinitialinvestment?•PaybackPeriod=numberofyearstorecoverinitialcosts•MinimumAcceptanceCriteria:–setbymanagement•RankingCriteria:–setbymanagementMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.6-5ThePaybackPeriodRule(continued)•Disadvantages:–Ignoresthetimevalueofmoney–Ignorescashflowsafterthepaybackperiod–Biasedagainstlong-termprojects–Requiresanarbitraryacceptancecriteria–AprojectacceptedbasedonthepaybackcriteriamaynothaveapositiveNPV•Advantages:–Easytounderstand–BiasedtowardliquidityMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.6-66.3TheDiscountedPaybackPeriodRule•Howlongdoesittaketheprojectto“payback”itsinitialinvestmenttakingthetimevalueofmoneyintoaccount?•Bythetimeyouhavediscountedthecashflows,youmightaswellcalculatetheNPV.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.6-76.4TheAverageAccountingReturnRule•Anotherattractivebutfatallyflawedapproach.•RankingCriteriaandMinimumAcceptanceCriteriasetbymanagement•Disadvantages:–Ignoresthetimevalueofmoney–Usesanarbitrarybenchmarkcutoffrate–Basedonbookvalues,notcashflowsandmarketvalues•Advantages:–Theaccountinginformationisusuallyavailable–EasytocalculateInvestentofValueBookAverageIncomeNetAverageAARMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.6-86.5TheInternalRateofReturn(IRR)Rule•IRR:thediscountthatsetsNPVtozero•MinimumAcceptanceCriteria:–AcceptiftheIRRexceedstherequiredreturn.•RankingCriteria:–SelectalternativewiththehighestIRR•Reinvestmentassumption:–AllfuturecashflowsassumedreinvestedattheIRR.•Disadvantages:–Doesnotdistinguishbetweeninvestingandborrowing.–IRRmaynotexistortheremaybemultipleIRR–Problemswithmutuallyexclusiveinvestments•Advantages:–EasytounderstandandcommunicateMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.6-9TheInternalRateofReturn:ExampleConsiderthefollowingproject:0123$50$100$150-$200Theinternalrateofreturnforthisprojectis19.44%200$)1(150$)1(100$)1(50$032IRRIRRIRRNPVMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.6-10TheNPVPayoffProfileforThisExampleDiscountRateNPV0%$100.004%$71.048%$47.3212%$27.7916%$11.6520%($1.74)24%($12.88)28%($22.17)32%($29.93)36%($36.43)40%($41.86)IfwegraphNPVversusdiscountrate,wecanseetheIRRasthex-axisintercept.IRR=19.44%($60.00)($40.00)($20.00)$0.00$20.00$40.00$60.00$80.00$100.00$120.00-1%9%19%29%39%DiscountrateNPVMcGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.6-116.6ProblemswiththeIRRApproach•MultipleIRRs.•AreWeBorrowingorLending?•TheScaleProblem.•TheTimingProblem.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.6-12MultipleIRRsTherearetwoIRRsforthisproject:0123$200$800-$200-$800($150.00)($100.00)($50.00)$0.00$50.00$100.00-50%0%50%100%150%200%DiscountrateNPV100%=IRR20%=IRR1Whichoneshouldweuse?McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.6-13TheScaleProblemWouldyourathermake100%or50%onyourinvestments?Whatifthe100%returnisona$1investmentwhilethe50%returnisona$1,000investment?McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.6-14TheTimingProblem0123$10,000$1,000$1,000-$10,000ProjectA0123$1,000$1,000$12,000-$10,000ProjectBThepreferredprojectinthiscasedependsonthediscountrate,nottheIRR.McGraw-Hill/IrwinCopyright©2002byTheMcGraw-HillCompanies,Inc.Allrightsreserved.6-15TheTimingProblem($4,000.00)($3,000.00)($2,000.00)($1,000.00)$0.00$1,000.00$2,000.00$3,000.00$4,000.00$5,000.000%10%20%30%40%DiscountrateNPVProjectAProjectB10.55%=crossoverrate12.94%=IRRB16.04%=IRRAMcGraw-Hill