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1、Chapter 10Making Capital Investment DecisionsMcGraw-Hill/IrwinCopyright 2010 by The McGraw-Hill Companies,Inc.All rights reserved.KeyConceptsandSkillsUnderstandhowtodeterminetherelevantcashflowsforvarioustypesofproposedinvestmentsUnderstandthevariousmethodsforcomputingoperatingcashflowUnderstandhowt
2、osetabidpriceforaprojectUnderstandhowtoevaluatetheequivalentannualcostofaproject10-2ChapterOutlineProjectCashFlows:AFirstLookIncrementalCashFlowsProFormaFinancialStatementsandProjectCashFlowsMoreaboutProjectCashFlowAlternativeDefinitionsofOperatingCashFlowSomeSpecialCasesofDiscountedCashFlowAnalysis
3、10-3RelevantCashFlowsThecashflowsthatshouldbeincludedinacapitalbudgetinganalysisarethosethatwillonlyoccur(ornotoccur)iftheprojectisacceptedThesecashflowsarecalledincremental cash flowsThestand-alone principleallowsustoanalyzeeachprojectinisolationfromthefirmsimplybyfocusingonincrementalcashflows10-4
4、AskingtheRightQuestionYoushouldalwaysaskyourself“WillthiscashflowoccurONLYifweaccepttheproject?”Iftheansweris“yes,”itshouldbeincludedintheanalysisbecauseitisincrementalIftheansweris“no,”itshouldnotbeincludedintheanalysisbecauseitwilloccuranywayIftheansweris“partofit,”thenweshouldincludethepartthatoc
5、cursbecauseoftheproject10-5CommonTypesofCashFlowsSunkcostscoststhathaveaccruedinthepastOpportunitycostscostsoflostoptionsSideeffectsPositivesideeffectsbenefitstootherprojectsNegativesideeffectscoststootherprojectsChangesinnetworkingcapitalFinancingcostsTaxes10-6ProFormaStatementsandCashFlowCapitalbu
6、dgetingreliesheavilyonproformaaccountingstatements,particularlyincomestatementsComputingcashflowsrefresherOperatingCashFlow(OCF)=EBIT+depreciationtaxesOCF=Netincome+depreciation(whenthereisnointerestexpense)CashFlowFromAssets(CFFA)=OCFnetcapitalspending(NCS)changesinNWC10-7Table10.1ProFormaIncomeSta
7、tementSales(50,000unitsat$4.00/unit)$200,000VariableCosts($2.50/unit)125,000Grossprofit$75,000Fixedcosts12,000Depreciation($90,000/3)30,000EBIT$33,000Taxes(34%)11,220NetIncome$21,78010-8Table10.2ProjectedCapitalRequirementsYear0123NWC$20,000$20,000$20,000$20,000NFA90,00060,000 30,0000Total$110,000$8
8、0,000$50,000$20,00010-9Table10.5ProjectedTotalCashFlowsYear0123OCF$51,780$51,780$51,780ChangeinNWC-$20,00020,000NCS-$90,000CFFA-$110,00$51,780$51,780$71,78010-10MakingTheDecisionNowthatwehavethecashflows,wecanapplythetechniquesthatwelearnedinChapter9EnterthecashflowsintothecalculatorandcomputeNPVand
9、IRRCF0=-110,000;C01=51,780;F01=2;C02=71,780;F02=1NPV;I=20;CPTNPV=10,648CPTIRR=25.8%Should we accept or reject the project?10-11Daniellesisafurniturestorethatisconsideringaddingappliancestoitsofferings.Whichofthefollowingshouldbeconsideredincrementalcashflowsofthisproject?I.utilizingthecreditofferedb
10、yasuppliertopurchasetheapplianceinventoryII.benefitingfromincreasedfurnituresalestoappliancecustomersIII.borrowingmoneyfromabanktofundtheapplianceprojectIV.purchasingpartsforinventorytohandleanyappliancerepairsthatmightbenecessaryA.IandIIonlyB.IIIandIVonlyC.I,II,andIVonlyD.II,III,andIVonly复习题Whichof
11、thefollowingshouldbeincludedintheanalysisofanewproduct?I.moneyalreadyspentforresearchanddevelopmentofthenewproductII.reductioninsalesforacurrentproductoncethenewproductisintroducedIII.increaseinaccountsreceivableneededtofinancesalesofthenewproductIV.marketvalueofamachineownedbythefirmwhichwillbeused
12、toproducethenewproductA.IandIIIonlyB.IIandIVonlyC.I,II,andIIIonlyD.II,III,andIVonlyE.I,II,III,andIV复习题Allofthefollowingarerelatedtoaproposedproject.Whichoftheseshouldbeincludedinthecashflowattimezero?I.purchaseof$1,400ofpartsinventoryneededtosupporttheprojectII.loanof$125,000usedtofinancetheprojectI
13、II.depreciationtaxshieldof$1,100IV.$6,500ofequipmentneededtocommencetheprojectA.IandIIonlyB.IandIVonlyC.IIandIVonlyD.I,II,andIVonlyE.I,II,III,andIV复习题MoreonNWCWhydowehavetoconsiderchangesinNWCseparately?GAAPrequiresthatsalesberecordedontheincomestatementwhenmade,notwhencashisreceivedGAAPalsorequires
14、thatwerecordcostofgoodssoldwhenthecorrespondingsalesaremade,whetherwehaveactuallypaidoursuppliersyetFinally,wehavetobuyinventorytosupportsales,althoughwehaventcollectedcashyet10-15DepreciationThedepreciationexpenseusedforcapitalbudgetingshouldbethedepreciationschedulerequiredbytheIRSfortaxpurposesDe
15、preciationitselfisanon-cashexpense;consequently,itisonlyrelevantbecauseitaffectstaxesDepreciationtaxshield=DTD=depreciationexpenseT=marginaltaxrate10-16ComputingDepreciationStraight-linedepreciationD=(Initialcostsalvage)/numberofyearsVeryfewassetsaredepreciatedstraight-linefortaxpurposesMACRSNeedtok
16、nowwhichassetclassisappropriatefortaxpurposesMultiplypercentagegivenintablebytheinitialcostDepreciatetozeroMid-yearconvention10-17After-taxSalvageIfthesalvagevalueisdifferentfromthebookvalueoftheasset,thenthereisataxeffectBookvalue=initialcostaccumulateddepreciationAfter-taxsalvage=salvageT(salvageb
17、ookvalue)10-18Example:DepreciationandAfter-taxSalvageYoupurchaseequipmentfor$100,000,anditcosts$10,000tohaveitdeliveredandinstalled.Basedonpastinformation,youbelievethatyoucanselltheequipmentfor$17,000whenyouaredonewithitin6years.Thecompanysmarginaltaxrateis40%.Whatisthedepreciationexpenseeachyearan
18、dtheafter-taxsalvageinyear6foreachofthefollowingsituations?10-19Example:Straight-lineSupposetheappropriatedepreciationscheduleisstraight-lineD=(110,00017,000)/6=15,500everyyearfor6yearsBVinyear6=110,0006(15,500)=17,000After-taxsalvage=17,000-.4(17,00017,000)=17,00010-20Example:Three-yearMACRSYearMAC
19、RSpercentD1.3333.3333(110,000)=36,6632.4445.4445(110,000)=48,8953.1481.1481(110,000)=16,2914.0741.0741(110,000)=8,151BV in year 6=110,000 36,663 48,895 16,291 8,151=0After-tax salvage=17,000-.4(17,000 0)=$10,20010-21Example:Seven-YearMACRSYearMACRSPercentD1.1429.1429(110,000)=15,7192.2449.2449(110,0
20、00)=26,9393.1749.1749(110,000)=19,2394.1249.1249(110,000)=13,7395.0893.0893(110,000)=9,8236.0892.0892(110,000)=9,812BV in year 6=110,000 15,719 26,939 19,239 13,739 9,823 9,812=14,729After-tax salvage=17,000.4(17,000 14,729)=16,091.6010-22OtherMethodsforComputingOCFBottom-UpApproachWorksonlywhenther
21、eisnointerestexpenseOCF=NI+depreciationTop-DownApproachOCF=SalesCostsTaxesDontsubtractnon-cashdeductionsTaxShieldApproachOCF=(SalesCosts)(1T)+Depreciation*T10-23Example:ReplacementProblemOriginalMachineInitialcost=100,000Annualdepreciation=9,000Purchased5yearsagoBookValue=55,000Salvagetoday=65,000Sa
22、lvagein5years=10,000NewMachineInitialcost=150,0005-yearlifeSalvagein5years=0Costsavings=50,000peryear3-yearMACRSdepreciationRequiredreturn=10%Taxrate=40%10-24ReplacementProblemComputingCashFlowsRememberthatweareinterestedinincrementalcashflowsIfwebuythenewmachine,thenwewillselltheoldmachineWhatareth
23、ecashflowconsequencesofsellingtheoldmachinetodayinsteadofin5years?10-25ReplacementProblemProFormaIncomeStatementsYear12345CostSavings50,00050,00050,00050,00050,000Depr.New49,99566,67522,21511,1150Old9,0009,0009,0009,0009,000Increm.40,99557,67513,2152,115(9,000)EBIT9,005(7,675)36,78547,88559,000Taxes
24、3,602(3,070)14,71419,15423,600NI5,403(4,605)22,07128,73135,40010-26Replacement Problem Incremental Net Capital SpendingYear0Costofnewmachine=150,000(outflow)After-taxsalvageonoldmachine=65,000-.4(65,00055,000)=61,000(inflow)Incrementalnetcapitalspending=150,00061,000=89,000(outflow)Year5After-taxsal
25、vageonoldmachine=10,000-.4(10,00010,000)=10,000(outflowbecausewenolongerreceivethis)10-27ReplacementProblemCashFlowFromAssetsYear012345OCF46,39853,07035,28630,84626,400NCS-89,000-10,000InNWC00CFFA-89,00046,39853,07035,28630,84616,40010-28ReplacementProblemAnalyzingtheCashFlowsNowthatwehavethecashflo
26、ws,wecancomputetheNPVandIRREnterthecashflowsComputeNPV=54,801.74ComputeIRR=36.28%Should the company replace the equipment?10-29NewCashFlowFromAssets(straightline)Year012345OCF62000+x62000+x62000+x62000+x62000+xNCS-150,0000InNWC-yyCFFA-150000-y62000+x62000+x62000+x62000+x62000+x+y10-30oringnalCashFlo
27、wFromAssetsYear012345OCF36000+x36000+x36000+x36000+x36000+xNCS61000-10,000NWC-yyCFFA-61,000-y36000+x36000+x36000+x36000+x26000+x+y10-31ReplacementProblemCashFlowFromAssetsYear012345OCF5840058400584005840058400NCS-89,000-10,000InNWC00CFFA-89,000584005840058400584004840010-32Example:CostCuttingYourcom
28、panyisconsideringanewcomputersystemthatwillinitiallycost$1million.Itwillsave$300,000peryearininventoryandreceivablesmanagementcosts.Thesystemisexpectedtolastforfiveyearsandwillbedepreciatedusing3-yearMACRS.Thesystemisexpectedtohaveasalvagevalueof$50,000attheendofyear5.Thereisnoimpactonnetworkingcapi
29、tal.Themarginaltaxrateis40%.Therequiredreturnis8%.ClickontheExcelicontoworkthroughtheexample10-33Example:SettingtheBidPriceConsiderthefollowinginformation:Armyhasrequestedbidformultipleusedigitizingdevices(MUDDs)Deliver4unitseachyearforthenext3yearsLaborandmaterialsestimatedtobe$10,000perunitProduct
30、ionspaceleasedfor$12,000peryearRequires$50,000infixedassetswithexpectedsalvageof$10,000attheendoftheproject(depreciatestraight-line)Requireinitial$10,000increaseinNWCTaxrate=34%Requiredreturn=15%10-34Example:EquivalentAnnualCostAnalysisBurnoutBatteriesInitialCost=$36each3-yearlife$100peryeartokeepch
31、argedExpectedsalvage=$5Straight-linedepreciationLong-lastingBatteriesInitialCost=$60each5-yearlife$88peryeartokeepchargedExpectedsalvage=$5Straight-linedepreciationThe machine chosen will be replaced indefinitely and neither machine will have a differential impact on revenue.No change in NWC is requ
32、ired.The required return is 15%,and the tax rate is 34%.10-35QuickQuizHowdowedetermineifcashflowsarerelevanttothecapitalbudgetingdecision?Whatarethedifferentmethodsforcomputingoperatingcashflowandwhenaretheyimportant?Whatisthebasicprocessforfindingthebidprice?Whatisequivalentannualcostandwhenshouldi
33、tbeused?10-36EthicsIssuesInanL.A.Lawepisode,anautomobilemanufacturerknowinglybuiltcarsthathadasignificantsafetyflaw.Ratherthanredesigningthecars(atsubstantialadditionalcost),themanufacturercalculatedtheexpectedcostsoffuturelawsuitsanddeterminedthatitwouldbecheapertosellanunsafecaranddefenditselfagai
34、nstlawsuitsthantoredesignthecar.Whatissuesdoesthefinancialanalysisoverlook?10-37ComprehensiveProblemA$1,000,000investmentisdepreciatedusingaseven-yearMACRSclasslife.Itrequires$150,000inadditionalinventoryandwillincreaseaccountspayableby$50,000.Itwillgenerate$400,000inrevenueand$150,000incashexpenses
35、annually,andthetaxrateis40%.Whatistheincrementalcashflowinyears0,1,7,and8?10-38EndofChapter10-391、每一个成功者都有一个开始。勇于开始，才能找到成功的路。11月-2211月-22Tuesday,November 8,20222、成功源于不懈的努力，人生最大的敌人是自己怯懦。03:08:1903:08:1903:0811/8/2022 3:08:19 AM3、每天只看目标，别老想障碍。11月-2203:08:1903:08Nov-2208-Nov-224、宁愿辛苦一阵子，不要辛苦一辈子。03:08:1
36、903:08:1903:08Tuesday,November 8,20225、积极向上的心态，是成功者的最基本要素。11月-2211月-2203:08:1903:08:19November 8,20226、生活总会给你另一个机会，这个机会叫明天。08 十一月 20223:08:19 上午03:08:1911月-227、人生就像骑单车，想保持平衡就得往前走。十一月 223:08 上午11月-2203:08November 8,20228、业余生活要有意义，不要越轨。2022/11/8 3:08:1903:08:1908 November 20229、我们必须在失败中寻找胜利，在绝望中寻求希望。3:08:19 上午3:08 上午03:08:1911月-2210、一个人的梦想也许不值钱，但一个人的努力很值钱。11/8/2022 3:08:19 AM03:08:1908-11月-2211、在真实的生命里，每桩伟业都由信心开始，并由信心跨出第一步。11/8/2022 3:08 AM11/8/2022 3:08 AM11月-2211月-22谢谢大家谢谢大家