公司理财(双语)npv.pptx

Why Net Present Value Leads to Better Investment Decisions than Other CriteriaCorporate FinanceChapter 9McGraw Hill/Irwin Topics CoveredNPV and its CompetitorsThe Payback PeriodThe Average Accounting ReturnInternal Rate of ReturnCapital Rationing CFO Decision ToolsSurvey Data on CFO Use of Investment Evaluation TechniquesSOURCE: Graham and Harvey, “The Theory and Practice of Finance: Evidence from the Field,” Journal of Financial Economics 61 (2001), pp. 187-243. Good Decision CriteriaWe need to ask ourselves the following questions when evaluating capital budgeting decision rules: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?9-4 Net Present ValueThe difference between the market value of a project and its cost.Net Present Value (NPV) = ﹣Initial Investment + Total PV of future CF’s9-5 NPV – Decision RuleEstimating NPV:1. Estimate future cash flows: how much? and when?2. Estimate discount rate3. Estimate initial costs NPV – Decision RuleIf the NPV is positive, accept the projectA 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.9-7 NPV – Decision RuleMinimum Acceptance Criteria: Accept if NPV > 0Ranking Criteria: Choose the highest NPVExample9.1 see page263 PaybackThe payback period of a project is the number of years it takes before the cumulative forecasted cash flow equals the initial outlay.The payback rule says only accept projects that “payback” in the desired time frame. This method is very flawed, primarily because it ignores later year cash flows and the the present value of future cash flows. PaybackExample Examine the three projects and note the mistake we would make if we insisted on only taking projects with a payback period of 2