projectinteractions,sidecosts,andsidebenefits(编辑修改稿)

projectinteractions,sidecosts,andsidebenefits(编辑修改稿)内容摘要：

d to have a life of four years, at which point they will have no salvage value. The investments will be depreciated straight line over the fouryear life.  The revenues in the first year are expected to be $ million, growing 20% in year two, and 10% in the two years following.  The salaries and other benefits for the employees are estimated to be $150,000 in year one, and grow 10% a year for the following three years.  The cost of the books will be 60% of the revenues in each of the four years.  The working capital, which includes the inventory of books needed for the service and the accounts receivable will be10% of the revenues。 the investments in working capital have to be made at the beginning of each year. At the end of year 4, the entire working capital is assumed to be salvaged.  The tax rate on ine is expected to be 40%. Aswath Damodaran 29 Cost of capital for investment  Wee will reestimate the beta for this online project by looking at publicly traded Inter retailers. The unlevered total beta of inter retailers is , and we assume that this project will be funded with the same mix of debt and equity (D/E = %, Debt/Capital = %) that Bookscape uses in the rest of the business. We will assume that Bookscape’s tax rate (40%) and pretax cost of debt (6%) apply to this project. Levered Beta Online Service = [1 + (1 – ) ()] = Cost of Equity Online Service = % + (6%) = % Cost of CapitalOnline Service= % () + 6% (1 – ) () = % Aswath Damodaran 30 Incremental Cash flows on Investment NPV of investment = $98,775 Aswath Damodaran 31 The side costs…  It is estimated that the additional business associated with online ordering and the administration of the service itself will add to the workload for the current general manager of the bookstore. As a consequence, the salary of the general manager will be increased from $100,000 to $120,000 next year。 it is expected to grow 5 percent a year after that for the remaining three years of the online venture. After the online venture is ended in the fourth year, the manager’s salary will revert back to its old levels.  It is also estimated that Bookscape Online will utilize an office that is currently used to store financial records. The records will be moved to a bank vault, which will cost $1000 a year to rent. Aswath Damodaran 32 NPV with side costs… Additional salary costs Office Costs NPV adjusted for side costs= 98,775 $29,865 $1405 = $130,045 Opportunity costs aggregated into cash flows Aswath Damodaran 33 Case 3: Excess Capacity  In the Aracruz example, assume that the firm will use its existing distribution system to service the production out of the new paper plant. The new plant manager argues that there is no cost associated with using this system, since it has been paid for already and cannot be sold or leased to a petitor (and thus has no peting current use). Do you agree? a) Yes b) No Aswath Damodaran 34 Case 4: Excess Capacity: A More Complicated Example  Assume that a cereal pany has a factory with a capacity to produce 100,000 boxes of cereal and that it expects to uses only 50% of capacity to produce its existing product (Bran Banana) next year. This product’s sales are expected to grow 10% a year in the long term and the pany has an aftertax contribution margin (Sales price Variable cost) of $4 a unit.  It is considering introducing a new cereal (Bran Raisin) and plans to use the excess capacity to produce the product. The sales in year 1 are expected to be 30,000 units and grow 5% a year in the long term。 the aftertax contribution margin on this product is $5 a unit.  The book value of the factory is $ 1 million. The cost of building a new factory with the same capacity is $ million. The pany’s cost of capital is 12%. Aswath Damodaran 35 A Framework for Assessing The Cost of Using Excess Capacity  If I do not add the new product, when will I run out of capacity?  If I add the new product, when will I run out of capacity?  When I run out of capacity, what will I do? 1. Cut back on production: cost is PV of aftertax cash flows from lost sales 2. Buy new capacity: cost is difference in PV between earlier amp。 later investment Aswath Damodaran 36 Opportunity Cost of Excess Capacity Year Old New Old + New Lost ATCF PV(ATCF) 1 % % % $0 2 % % % $0 3 % % % $0 4 % % % $5,115 $ 3,251 5 % % % $38,681 $ 21,949 6 % % % $75,256 $ 38,127 7 % % % $115,124 $ 52,076 8 % % % $158,595 $ 64,054 9 100% % % $177,280 $ 63,929 10 100% % % $186,160 $ 59,939 PV(Lost Sales)= $ 303,324  PV (Building Capacity In Year 3 Instead Of Year 8) = 1,500,000/ 1,500,000/ = $ 461,846  Opportunity Cost of Excess Capacity = $ 303,324 Aswath Damodaran 37 Product and Project Cannibalization: A Real Cost? Assume that in the Disney theme park example, 20% of the revenues at the Rio Disney park are expected to e from people who would have gone to Disney theme parks in the US. In doing the analysis of the park, you would a) Look at only incremental revenues (. 80% of the total revenue) b) Look at total revenues at the park c) Choose an intermediate number Would your answer be different if you were analyzing whether to introduce a new show on the Disney cable channel on Saturday mornings that is expected to attract 20% of its viewers from ABC (which is also owned by Disney)? a) Yes b) No Aswath Damodaran 38 B. Project Synergies  A project may provide benefits for other projects within the firm. If this is the case, these benefits have to be valued and shown in the initial project analysis.  Consider, for instance, a typical Disney animated movie. Assume that it costs $ 50 million to。