文档介绍：Irwin/McGraw-Hill
Chapter 6
Fundamentals of Corporate Finance
Third Edition
Net Present Value and Other Investment Criteria
Brealey Myers Marcus
slides by Matthew Will
Irwin/McGraw-Hill
The McGraw-panies, Inc.,2001
Topics Covered
Net Present Value
Other Investment Criteria
Project Interactions
Capital Rationing
Net Present Value
Opportunity Cost of Capital - Expected rate of return given up by investing in a project.
Net Present Value - Present value of cash flows minus initial investments.
Net Present Value
Example
Suppose we can invest $50 today and receive $60 in one year. What is our increase in value given a 10% expected return?
This is the definition of NPV
Initial Investment
Added Value
$50
$
Net Present Value
NPV = PV - required investment
Net Present Value
Terminology
C = Cash Flow
t = time period of the investment
r = “opportunity cost of capital”
The Cash Flow could be positive or negative at any time period.
Net Present Value
Net Present Value Rule
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.
Net Present Value
Example
You have the opportunity to purchase an office building. You have a tenant lined up that will generate $16,000 per year in cash flows for three years. At the end of three years you anticipate selling the building for $450,000. How much would you be willing to pay for the building?
Net Present Value
0 1 2 3
$16,000
$16,000
$16,000
$450,000
$466,000
Present Value
14,953
14,953
380,395
$409,323
Example - continued
Net Present Value
Example - continued
If the building is being offered for sale at a price of $350,000, would you buy the building and what is the added value generated by your purchase and management of the building?