文档介绍：Chapter 7
Net present value and other investment criteria
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Objectives
Calculate present value of an investment
Calculate the internal rate of return of a project and know what to look out for when using the internal rate of return rule
Explain why the payback rule doesn’t always make shareholders better off
Use present value rule to analyze mon problems that peting projects: (a) when to postpone an investment expenditure, (b) how to choose between projects with unequal lives, and (c) when to replace equipment
Calculate the profitability index and use it choose between projects when funds are limited
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Content
Net present value
Other investment criteria
More examples of mutually exclusive projects
Capital rationing
A last look
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Net present value (NPV): present value of cash flows minus investment
present value rule states that managers increase shareholders’ wealth by accepting all projects that are worth more than they cost. Therefore, they should accept all projects with a present value
The first two steps in calculating NPVs: forecasting the cash flows and estimating the opportunity cost of capital
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Suppose that you have identified a possible tenant who would be prepared to rent your office block for 3 years at a fixed annual rent of $16000. You forecast that after you have collected the third year’s rent the building could be sold for $450000
Assume that the opportunity cost of capital is r = 7%
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When you need to choose among mutually exclusive projects, the decision rule is simple: calculate the NPV of each alternative, and choose the highest positive-NPV project
Mutually exclusive projects: two or more projects that cannot be pursued simultaneously
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Net present value: 净现值
Opportunity cost of capital: 资金的机会成本
Mutually exclusive projects: 互斥项目
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Content
Net present value
Other investment criteria
More examples