capitalbudgetingbasicsinstructor39smanual：资本预算的基础教师手册

capitalbudgetingbasicsinstructor39smanual：资本预算的基础教师手册内容摘要：

ect39。 s NPV to equal zero (the IRR) rather than using the cost of capital (r) in the denominator and finding NPV. Thus, the two approaches differ in only one respect: in the NPV method, a discount rate is specified (the project39。 s cost of capital) and the equation is solved for NPV, while in the IRR method, the NPV is specified to equal zero and the discount rate (IRR) which forces this equality is found. Franchise L39。 s IRR is percent: 0 1 2 3 | | | | 10 60 80 $ ≈ $0 if IRRL = % is used as the discount rate. therefore, IRRL ≈ %. A financial calculator is extremely helpful when calculating IRRs. The cash flows are entered sequentially, and then the IRR button is pressed. For franchise S, IRRS ≈ %. Note that with many calculators, you can enter the cash flows into the cash flow register, also enter r = i, and then calculate both NPV and IRR by pressing the appropriate buttons. IRR % Mini Case: 10 8 e. 2. How is the IRR on a project related to the YTM on a bond? Answer: The IRR is to a capital project what the YTM is to a bond. It is the expected rate of return on the project, just as the YTM is the promised rate of return on a bond. e. 3. What is the logic behind the IRR method? According to IRR, which franchises should be accepted if they are independent? Mutually exclusive? Answer: IRR measures a project39。 s profitability in the rate of return sense: if a project39。 s IRR equals its cost of capital, then its cash flows are just sufficient to provide investors with their required rates of return. An IRR greater than r implies an economic profit, which accrues to the firm39。 s shareholders, while an IRR less than r indicates an economic loss, or a project that will not earn enough to cover its cost of capital. Projects39。 IRRs are pared to their costs of capital, or hurdle rates. Since franchises L and S both have a hurdle rate of 10 percent, and since both have IRRs greater than that hurdle rate, both should be accepted if they are independent. However, if they are mutually exclusive, franchise S would be selected, because it has the higher IRR. e. 4. Would the franchises39。 IRRs change if the cost of capital changed? Answer: IRRs are independent of the cost of capital. Therefore, neither IRRS nor IRRL would change if r changed. However, the acceptability of the franchises could changeL would be rejected if r were above %, and S would also be rejected if r were above %. f. 1. Draw NPV profiles for franchises L and S. At what discount rate do the profiles cross? Answer: the NPV profiles are plotted in the figure below. Note the following points: 1. The yintercept is the project39。 s NPV when r = 0%. This is $50 for L and $40 for S. 2. The xintercept is the project39。 s IRR. This is percent for l and percent for S. 3. NPV profiles are curves rather than straight lines. To see this, note that these profiles approach cost = $100 as r approaches infinity. Mini Case: 10 9 4. From the figure below, it appears that the crossover point is between 8 and 9 percent. The precise value is approximately percent. One can calculate the crossover rate by (1) going back to the data on the problem, finding the cash flow differences for each year, (2) entering those differences into the cash flow register, and (3) pressing the IRR button to get the crossover rate, % ≈ %. r NPVL NPVS 0% $50 $40 5 33 29 10 19 20 15 7 12 20 (4) 5 1 001020304050600 5 10 15 20 2 3 . 6Disc oun t Ra te ( % )IRRL= 18. 1%IRRS= 23. 6%Cr ossover Poi nt = 8. 7 %SL Mini Case: 10 10 f. 2. Look at your NPV profile graph without referring to the actual NPVs and IRRs. Which franchise or franchises should be accepted if they are independent? Mutually exclusive? Explain. Are your answers correct at any cost of capital less than percent? Answer: The NPV profiles show that the IRR and NPV criteria lead to the same accept/reject decision for any independent project. Consider franchise L. It intersects the xaxis at its IRR, percent. According to the IRR rule, L is acceptable if r is less than percent. Also, at any r less than percent, L39。 s NPV profile will be above the x axis, so its NPV will be greater than $0. Thus, for any independent project, NPV and IRR lead to the same accept/reject decision. Now assume that L and S are mutually exclusive. In this case, a conflict might arise. First, note that IRRS = % % = therefore, regardless of the size of r, project S would be ranked higher by the IRR criterion. However, the NPV profiles show that NPVL NPVS if r is less than percent. Therefore, for any r below the % crossover rate, say r = 7 percent, the NPV rule says choose L, but the IRR rule says choose S. Thus, if r is less than the crossover rate, a ranking conflict occurs. g. 1. What is the underlying cause of ranking conflicts between NPV and IRR? Answer: For normal projects39。 NPV profiles to cross, one project must have both a higher vertical axis intercept and a steeper slope than the other. A project39。 s vertical axis intercept typically depends on (1) the size of the project and (2) the size and timing pattern of the cash fl。