公司理财精要chap008
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公司理财精要Chap007
7-5
One Period Example
• • • • • D1 = $2 dividend expected in one year R = 20% P1 = $14 CF1 = $2 + $14 = $16 Compute the PV of the expected cash flows
( 2 14) P0 $13.33 1.20
– The company pays dividends – You sell your shares, either to another investor in the market or back to the company
• As with bonds, the price of the stock is the present value of these expected cash flows
150 100 50 0 0 0.05 0.1 Growth Rate
7-19
0.15
0.2
Stock Price Sensitivity to Required Return, R
250 200
D1 = $2; g = 5%
Stock Price
150 100 50 0 0 0.05 0.1 0.15 Growth Rate
7-11
Estimating Dividends
Special Cases
• Constant dividend/Zero Growth
– Firm will pay a constant dividend forever – Like preferred stock – Price is computed using the perpetuity formula
One Period Example
• • • • • D1 = $2 dividend expected in one year R = 20% P1 = $14 CF1 = $2 + $14 = $16 Compute the PV of the expected cash flows
( 2 14) P0 $13.33 1.20
– The company pays dividends – You sell your shares, either to another investor in the market or back to the company
• As with bonds, the price of the stock is the present value of these expected cash flows
150 100 50 0 0 0.05 0.1 Growth Rate
7-19
0.15
0.2
Stock Price Sensitivity to Required Return, R
250 200
D1 = $2; g = 5%
Stock Price
150 100 50 0 0 0.05 0.1 0.15 Growth Rate
7-11
Estimating Dividends
Special Cases
• Constant dividend/Zero Growth
– Firm will pay a constant dividend forever – Like preferred stock – Price is computed using the perpetuity formula
公司理财精要chap006
6.1
McGraw-Hill/Irwin McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Outline
Bonds and Bond Valuation More on Bond Features Bond Ratings Some Different Types of Bonds Bond Markets Inflation and Interest Rates Determinants of Bond Yields
Know the important bond features and bond types Understand bond values and why they fluctuate Understand bond ratings and what they mean Understand the impact of inflation on interest rates Understand the term structure of interest rates and the determinants of bond yields
Computing YTM
Yield-to-maturity is the rate implied by the current bond price Finding the YTM requires trial and error if you do not have a financial calculator and is similar to the process for finding r with an annuity If you have a financial calculator, enter N, PV, PMT and FV, remembering the sign convention (PMT and FV need to have the same sign, PV the opposite sign)
McGraw-Hill/Irwin McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Outline
Bonds and Bond Valuation More on Bond Features Bond Ratings Some Different Types of Bonds Bond Markets Inflation and Interest Rates Determinants of Bond Yields
Know the important bond features and bond types Understand bond values and why they fluctuate Understand bond ratings and what they mean Understand the impact of inflation on interest rates Understand the term structure of interest rates and the determinants of bond yields
Computing YTM
Yield-to-maturity is the rate implied by the current bond price Finding the YTM requires trial and error if you do not have a financial calculator and is similar to the process for finding r with an annuity If you have a financial calculator, enter N, PV, PMT and FV, remembering the sign convention (PMT and FV need to have the same sign, PV the opposite sign)
公司理财精要版第10版Chap07-08
《公司财务》 Corporate Finance
1-1
第7-8章
第三部分 折现现金流量估价
第7章 利率和债券估价 第8章 股票估价
1-2
第7章 利率和债券估价
7.1 债券和债券估价 7.2 债券的其他特点 7.3 债券评级 7.4 一些不同类型的债券 7.5 债券市场 7.6 通货膨胀和利率 7.7 债券收益率的决定因素
债券定价理论
无论票面利率为多少，只要风险（及到期日）相似， 债券的到期收益率或贴现率就很接近。
如果知道一种债券的价格，就可估算其到期收益率 （YTM），然后用该到期收益率（YTM）信息来 为其他债券估价。
这种方法还推广应用于对债券之外的其他资产进行 估价。
债务和权益的差别
债务
▪ 不代表公司所有权
例：债券估价
假定一种美国政府债券的票面利率为6.375%，将于
2013年12月到期。
该债券的面值为$1,000.
利息支付为半年一次（每年6月30日和12月31日）
按6.375% 的票面年利率，每期支付利息应为$31.875.
该债券从2009年1月1日开始的现金流量规模和发生时间 为：
$31.875 $31.875 $31.875 $1,031.875
公司（借款人）和债权人之间的书面协议，通常包 括了下列条款：
▪ 债券的基本术语 ▪ 债券的发行总额 ▪ 对作为担保的财产的描述 ▪ 偿还安排 ▪ 赎回条款 ▪ 具体的保护性约定
债券分类Bond Classifications
记名式和不记名式（Registered vs. Bearer Forms） 担保Security
如果票面利率 > 市场利率，债券价格 > 面值（溢价债券）。
1-1
第7-8章
第三部分 折现现金流量估价
第7章 利率和债券估价 第8章 股票估价
1-2
第7章 利率和债券估价
7.1 债券和债券估价 7.2 债券的其他特点 7.3 债券评级 7.4 一些不同类型的债券 7.5 债券市场 7.6 通货膨胀和利率 7.7 债券收益率的决定因素
债券定价理论
无论票面利率为多少，只要风险（及到期日）相似， 债券的到期收益率或贴现率就很接近。
如果知道一种债券的价格，就可估算其到期收益率 （YTM），然后用该到期收益率（YTM）信息来 为其他债券估价。
这种方法还推广应用于对债券之外的其他资产进行 估价。
债务和权益的差别
债务
▪ 不代表公司所有权
例：债券估价
假定一种美国政府债券的票面利率为6.375%，将于
2013年12月到期。
该债券的面值为$1,000.
利息支付为半年一次（每年6月30日和12月31日）
按6.375% 的票面年利率，每期支付利息应为$31.875.
该债券从2009年1月1日开始的现金流量规模和发生时间 为：
$31.875 $31.875 $31.875 $1,031.875
公司（借款人）和债权人之间的书面协议，通常包 括了下列条款：
▪ 债券的基本术语 ▪ 债券的发行总额 ▪ 对作为担保的财产的描述 ▪ 偿还安排 ▪ 赎回条款 ▪ 具体的保护性约定
债券分类Bond Classifications
记名式和不记名式（Registered vs. Bearer Forms） 担保Security
如果票面利率 > 市场利率，债券价格 > 面值（溢价债券）。
公司理财Chap008_PPT
– Example: A 2/10, net 30 cash discount means:
• Reduction of 2% if funds are remitted 10 days after billing • Failure to do so means full payment of amount by the 30th day
1-3
Trade Credit
• Approximately 40 percent of short-term financing is in the form of accounts payable or trade credit
– Accounts payable
• Is a Spontaneous source of funds • Grows as the business expands • Contracts when business declines
1-6
Net-Credit Position
• Determined by examining the difference between accounts receivable and accounts payable
– Positive if accounts receivable is greater than accounts payable and vice versa – Larger firms tend to be net providers of trade credit (relatively high receivables) – Smaller firms in the relatively user position (relatively high payables)
• Reduction of 2% if funds are remitted 10 days after billing • Failure to do so means full payment of amount by the 30th day
1-3
Trade Credit
• Approximately 40 percent of short-term financing is in the form of accounts payable or trade credit
– Accounts payable
• Is a Spontaneous source of funds • Grows as the business expands • Contracts when business declines
1-6
Net-Credit Position
• Determined by examining the difference between accounts receivable and accounts payable
– Positive if accounts receivable is greater than accounts payable and vice versa – Larger firms tend to be net providers of trade credit (relatively high receivables) – Smaller firms in the relatively user position (relatively high payables)
公司理财精要双语教学版第七版教学设计
公司理财精要双语教学版第七版教学设计一、教学背景本节课主要为企业财务学与公司理财课程的一部分，适用于在职人员和学生。
该课程旨在使学生具有基本的财务和理财知识，以及企业财务和公司理财的概念和理解。
本节课程要求学生在课堂上能够听力，阅读和写作双语内容，同时，学生还能够理解课程中的主要概念和实践技能。
二、教学目标1.了解公司理财的基本概念；2.掌握公司理财的基本方法和技巧；3.掌握企业财务管理的基本原则和方法；4.能够理解和应用基本的财务分析技术；5.能够掌握基本的投资决策方法和技巧；6.能够了解公司融资和股权管理的基本原则和技巧；7.能够使用英语表述公司理财相关的基本概念和方法；8.能够在小组里参与讨论和解决公司理财相关的问题。
三、教学内容3.1 公司理财基本要素1.公司理财的定义和概念；2.公司的财务结构和组成；3.公司理财的基本原则和方法；4.公司理财中的风险和风险管理。
3.2 公司财务基本原则和方法1.公司财务报表和财务分析；2.企业资产负债表和资产负债表分析；3.营运资本管理和资金预算；4.投资资本的选择和基本的投资技巧。
3.3 公司理财中的融资和股权管理1.公司融资的方式和形式；2.股票和债券的基本概念；3.股票和债券市场的基本原则；4.股票和债券的投资策略和方法。
3.4 双语教学1.英语介绍公司理财的相关概念和方法；2.讨论和演示公司理财的相关案例。
四、教学方法1.讲授与互动结合的授课方式；2.小组讨论和演示案例；3.实例分析和演示；4.双语教学；5.课外阅读和练习。
五、教学评价1.结合课堂和课外练习的总评；2.参与讨论和演示案例的加分；3.提交书面作业的考核；4.每节课的课堂测试。
六、教学资源1.《公司理财精要双语教学版》(第七版)，作者：沈华著2. 案例分析和练习3. 参考教材和视频七、教学流程时间内容5min 课程介绍15min 公司理财基本要素20min 公司财务基本原则和方法15min 公司理财中的融资和股权管理20min 双语教学讲解30min 小组讨论和演示15min 课堂测试10min 总结和反馈合计2小时八、总结本节课程旨在使学生掌握公司理财的基本概念和方法，并能够应用到实际的情况中。
公司理财精要双语教学版第七版课程设计
公司理财精要双语教学版第七版课程设计背景现代企业面临着日益复杂的财务环境和风险，包括市场风险、信用风险、利率风险、外汇风险等。
因此，公司如何有效地管理财务是企业成功的关键之一。
公司理财是企业管理中必不可少的一部分。
通过科学的公司理财，企业可以提高经营效益、降低风险和增强财务稳定性。
本课程旨在帮助学生掌握现代公司理财的基本知识和理论，为未来的就业和职业发展做好充分准备。
目标本课程的主要目标是将学生培养为能够理解和应用公司理财基本知识和理论的专业人才。
具体目标包括：1.理解公司财务管理的基本原理和理论；2.掌握公司财务分析方法和工具；3.熟悉公司投资和融资的基本知识；4.了解公司税务管理和财务报告的要求。
教学内容第一章公司财务管理概论1.公司财务管理的基本概念和任务；2.公司理财决策的基本理论和方法；3.公司财务管理中的主要问题和挑战。
1.公司财务报表的基本原理和要素；2.财务比率分析和财务指标的应用；3.公司财务预测分析和风险评估。
第三章公司资本结构和资本成本1.公司资本结构的基本概念和理论；2.资本结构的权益和债务比例的决定；3.资本成本的计算方法和应用。
第四章公司投资决策1.投资决策的基本概念和方法；2.投资项目的评价和选择；3.投资组合管理和风险控制。
第五章公司融资决策1.融资决策的基本概念和方法；2.资本市场和公司融资工具；3.融资成本的评估和控制。
第六章公司价值管理1.公司价值的概念和理论；2.公司价值评估和管理；3.股价波动和市场效应的影响。
1.公司税务制度和纳税申报；2.利润分配与税务效应；3.税务筹划和风险控制。
教学方法本课程采用双语教学方法，以授课、案例研究、小组讨论和课程作业等模式相结合，帮助学生从理论、实践和应用角度全面学习公司理财相关知识。
考核标准学生将通过课程作业、小组讨论、期末论文和期末考试的形式进行评估，各项评估的比例如下：1.课程作业（20%）：包括课上、课下和实践考察；2.小组讨论（20%）：考察学生合作、沟通、解决问题和创新能力；3.期末论文（30%）：考察学生的撰写能力、理论研究和实践应用；4.期末考试（30%）：考察学生对课程知识的掌握程度和理解能力。
公司理财精要版第10版Chap05-06
5.1 终值和复利
$1.10(1.40)5 $1.10(1.40)4 $1.10(1.40)3 $1.10(1.40)2 $1.10 (1.40)
$1.10 $1.54 $2.16 $3.02 $4.23 $5.92
0
1
2
3
4
5
5.1 终值和复利
终值和复利计算
如果资金按复利（compound interest）计算，利息将被进 行再投资；而在单利（simple interest）情况下，利息没有 进行再投资，每期只赚取初始本金的利息。 $1×( 1 + r )2=1+2r+r2>1+2r
其中， $500 是利息 ($10,000 ×0.05)
$10,000 是本金偿还 ($10,000 × 1) $10,500 是本息合计，可由下式计算得到：
$10,500 = $10,000×(1.05) 该投资在期末的本息合计金额被称为终值。
5.1 终值和复利：多期投资的情形
终值和复利计算
《公司财务》 Corporate Finance
1-1
第三部分 折现现金流量估价
第5章 货币的时间价值 第6章 贴现现金流量估价
1-2
第5章 货币的时间价值
5.1 终值与复利 5.2 现值与贴现 5.3 现值与终值的进一步讲解
快速阅读
现金流量的终值是如何计算的? 现金流量的现值是如何计算的？ 如何计算投资回报率？ 如何计算一项投资的价值增长到期望值所需要的
PV CT (1 r)T
其中： CT 是在T期的现金流量 r 是适用的利率
1/(1 + r)T被叫做现值系数（Present Value Factor），缩写为PVIF(r,t)。 附录表A-2给出了“T期后得到的1元钱的现值（现值系数）”。
公司理财精要第十版课件
• 其他税费
公司理财精要第十版
2-12
例：边际税率和平均税率
• 假设你的公司赚取的应税所得额是4百万美 元
▪ 公司应缴纳多少税？ ▪ 平均税率是多少？ ▪ 边际税率是多少？
• 若你在考察一个项目，该项目将使得公司 的应纳税所得额增加1百万美元，则你在分 析中应该使用的税率是多少？
公司理财精要第十版
第二章
财务报表、税与现金流
公司理财精要第十版
关键概念与技能
• 掌握账面价值与市场价值的区别 • 掌握会计收益和现金流量的区别 • 掌握平均和边际税率的差别 • 掌握如何从一家公司的财务报表判断它的现金流量
公司理财精要第十版
2-2
章节概要
• 资产负债表 • 利润表 • 税务 • 现金流量
公司理财精要第十版
• 来自资产的现金流 = 547 – 130 – 330 = 87 美元
公司理财精要第十版
2-16
例:US公司-第2部分
• 流向债权人的现金流(B/S 和I/S) = 利息支 付-净新增借款= 24美元
• 流向股东的现金流(B/S 和I/S) = 股利支付 -净新募集权益= 63美元
• 来自资产的现金流= 24 + 63 = 87美元
2-21
职业道德问题
• 为什么对财务报表的操纵不仅是不道德和违 法的，还对股东有坏的影响？
(3,596 – 2,140) = 382 • 来自资产的现金流量 = 1,146 – 433 – 382 = 331 • 流向债权人的现金流= 93 – (538 – 581) = 136 • 流向股东的现金流= 285 – (462 – 372) = 195 • 来自资产的现金流量 = 136 + 195 = 331 • 现金流恒等式成立.
公司理财精要第十版
2-12
例：边际税率和平均税率
• 假设你的公司赚取的应税所得额是4百万美 元
▪ 公司应缴纳多少税？ ▪ 平均税率是多少？ ▪ 边际税率是多少？
• 若你在考察一个项目，该项目将使得公司 的应纳税所得额增加1百万美元，则你在分 析中应该使用的税率是多少？
公司理财精要第十版
第二章
财务报表、税与现金流
公司理财精要第十版
关键概念与技能
• 掌握账面价值与市场价值的区别 • 掌握会计收益和现金流量的区别 • 掌握平均和边际税率的差别 • 掌握如何从一家公司的财务报表判断它的现金流量
公司理财精要第十版
2-2
章节概要
• 资产负债表 • 利润表 • 税务 • 现金流量
公司理财精要第十版
• 来自资产的现金流 = 547 – 130 – 330 = 87 美元
公司理财精要第十版
2-16
例:US公司-第2部分
• 流向债权人的现金流(B/S 和I/S) = 利息支 付-净新增借款= 24美元
• 流向股东的现金流(B/S 和I/S) = 股利支付 -净新募集权益= 63美元
• 来自资产的现金流= 24 + 63 = 87美元
2-21
职业道德问题
• 为什么对财务报表的操纵不仅是不道德和违 法的，还对股东有坏的影响？
(3,596 – 2,140) = 382 • 来自资产的现金流量 = 1,146 – 433 – 382 = 331 • 流向债权人的现金流= 93 – (538 – 581) = 136 • 流向股东的现金流= 285 – (462 – 372) = 195 • 来自资产的现金流量 = 136 + 195 = 331 • 现金流恒等式成立.
公司理财精要chap007
Two Period Example
Now what if you decide to hold the stock for two years? In addition to the dividend in one year, you expect a dividend of $2.10 in and a stock price of $14.70 at the end of year 2. Now how much would you be willing to pay?
Stock Price Sensitivity to Dividend Growth,0%
200 Stock Price 150 100 50 0 0 0.05 0.1 Growth Rate
Three Period Example
Finally, what if you decide to hold the stock for three periods? In addition to the dividends at the end of years 1 and 2, you expect to receive a dividend of $2.205 at the end of year 3 and a stock price of $15.435. Now how much would you be willing to pay?
7.10
McGraw-Hill/Irwin McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
DGM – Example 1
Suppose Big D, Inc. just paid a dividend of $.50. It is expected to increase its dividend by 2% per year. If the market requires a return of 15% on assets of this risk, how much should the stock be selling for? P0 = .50(1+.02) / (.15 - .02) = $3.92
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Year 0: CF = -165,000 Year 1: CF = 63,120; NI = 13,620 Year 2: 70,800; NI = 3,300 Year 3: 91,080; NI = 29,100 Average Book Value = 72,000
Your required return for assets of this risk is 12%.
The first component is the required return entered as a decimal The second component is the range of cash flows beginning with year 1 Subtract the initial investment after computing the NPV
8.7
McGraw-Hill/Irwin McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Decision Criteria Test - NPV
Does the NPV rule account for the time value of money? Does the NPV rule account for the risk of the cash flows? Does the NPV rule provide an indication about the increase in value? Should we consider the NPV rule for our primary decision criteria?
8.10
McGraw-Hill/Irwin McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Computing Payback For The Project
Assume we will accept the project if it pays back within two years.
Does the payback rule account for the time value of money? Does the payback rule account for the risk of the cash flows? Does the payback rule provide an indication about the increase in value? Should we consider the payback rule for our primary decision criteria?
Do we accept or reject the project?
8.11
McGraw-Hill/Irwin McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Decision Criteria Test - Payback
Year 1: 165,000 – 63,120 = 101,880 still to recover Year 2: 101,880 – 70,800 = 31,080 still to recover Year 3: 31,080 – 91,080 = -60,000 project pays back in year 3
Does the decision rule adjust for the time value of money? Does the decision rule adjust for risk? Does the decision rule provide information on whether we are creating value for the firm?
The first step is to estimate the expected future cash flows. The second step is to estimate the required return for projects of this risk level. The third step is to find the present value of the cash flows and subtract the initial investment.
8.4
McGraw-Hill/Irwin McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Net Present Value
The difference between the market value of a project and its cost How much value is created from undertaking an investment?
8.12
McGraw-Hill/Irwin McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Advantages and Disadvantages of Payback
Advantages
Easy to understand Adjusts for uncertainty of later cash flows Biased towards liquidity
Understand the payback rule and its shortcomings Understand accounting rates of return and their problems Understand the internal rate of return and its strengths and weaknesses Understand the net present value rule and why it is the best decision criteria
8.9
McGraw-Hill/Irwin McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Payback Period
How long does it take to get the initial cost back in a nominal sense? Computation
Using the calculator:
CF0 = -165,000; C01 = 63,120; F01 = 1; C02 = 70,800; F02 = 1; C03 = 91,080; F03 = 1; NPV; I = 12; CPT NPV = 12,627.42
Do we accept or reject the project?
Estimate the cash flows Subtract the future cash flows from the initial cost until the initial investment has been recovered
Decision Rule – Accept if the payback period is less than some preset limit
8.8
McGraw-Hill/Irwin McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Calculating NPVs with a Spreadsheet
Spreadsheets are an excellent way to compute NPVs, especially when you have to compute the cash flows as well. Using the NPV function
8.5
McGraw-Hill/Irwin McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
NPV Decision Rule
If the NPV is positive, accept the project A positive NPV means that the project is expected to add value to the firm and will therefore increase the wealth of the owners. Since our goal is to increase owner wealth, NPV is a direct measure of how well this project will meet our goal.
Disadvantages
Ignores the time value of money Requires an arbitrary cutoff point Ignores cash flows beyond the cutoff date Biased against long-term projects, such as research and development, and new projects
8.1
McGraw-Hill/Irwin McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Your required return for assets of this risk is 12%.
The first component is the required return entered as a decimal The second component is the range of cash flows beginning with year 1 Subtract the initial investment after computing the NPV
8.7
McGraw-Hill/Irwin McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Decision Criteria Test - NPV
Does the NPV rule account for the time value of money? Does the NPV rule account for the risk of the cash flows? Does the NPV rule provide an indication about the increase in value? Should we consider the NPV rule for our primary decision criteria?
8.10
McGraw-Hill/Irwin McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Computing Payback For The Project
Assume we will accept the project if it pays back within two years.
Does the payback rule account for the time value of money? Does the payback rule account for the risk of the cash flows? Does the payback rule provide an indication about the increase in value? Should we consider the payback rule for our primary decision criteria?
Do we accept or reject the project?
8.11
McGraw-Hill/Irwin McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Decision Criteria Test - Payback
Year 1: 165,000 – 63,120 = 101,880 still to recover Year 2: 101,880 – 70,800 = 31,080 still to recover Year 3: 31,080 – 91,080 = -60,000 project pays back in year 3
Does the decision rule adjust for the time value of money? Does the decision rule adjust for risk? Does the decision rule provide information on whether we are creating value for the firm?
The first step is to estimate the expected future cash flows. The second step is to estimate the required return for projects of this risk level. The third step is to find the present value of the cash flows and subtract the initial investment.
8.4
McGraw-Hill/Irwin McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Net Present Value
The difference between the market value of a project and its cost How much value is created from undertaking an investment?
8.12
McGraw-Hill/Irwin McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Advantages and Disadvantages of Payback
Advantages
Easy to understand Adjusts for uncertainty of later cash flows Biased towards liquidity
Understand the payback rule and its shortcomings Understand accounting rates of return and their problems Understand the internal rate of return and its strengths and weaknesses Understand the net present value rule and why it is the best decision criteria
8.9
McGraw-Hill/Irwin McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Payback Period
How long does it take to get the initial cost back in a nominal sense? Computation
Using the calculator:
CF0 = -165,000; C01 = 63,120; F01 = 1; C02 = 70,800; F02 = 1; C03 = 91,080; F03 = 1; NPV; I = 12; CPT NPV = 12,627.42
Do we accept or reject the project?
Estimate the cash flows Subtract the future cash flows from the initial cost until the initial investment has been recovered
Decision Rule – Accept if the payback period is less than some preset limit
8.8
McGraw-Hill/Irwin McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
Calculating NPVs with a Spreadsheet
Spreadsheets are an excellent way to compute NPVs, especially when you have to compute the cash flows as well. Using the NPV function
8.5
McGraw-Hill/Irwin McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.
NPV Decision Rule
If the NPV is positive, accept the project A positive NPV means that the project is expected to add value to the firm and will therefore increase the wealth of the owners. Since our goal is to increase owner wealth, NPV is a direct measure of how well this project will meet our goal.
Disadvantages
Ignores the time value of money Requires an arbitrary cutoff point Ignores cash flows beyond the cutoff date Biased against long-term projects, such as research and development, and new projects
8.1
McGraw-Hill/Irwin McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved.