Ch018国际资本预算

18-13 Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
Capital Budgeting from the Parent Firm’s Perspective
APV =
t=1
Σ
T
(OCFt)(1 – τ) (1 + Ku )t
The Adjusted Present Value Model
NPV =
t=1
Σ
T
(OCFt)(1 – τ) (1 + K)t
TVT + + – C0 T t (1 + K) t = 1 (1 + K)
Σ
T
τ Dt
Can be converted to adjusted present value (APV)
18-4 Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
Review of Domestic Capital Budgeting
The NPV rule is to accept a project if NPV ≥ 0
18-3 Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
Review of Domestic Capital Budgeting
The basic net present value equation is T CFt TVT NPV = ∑ + − C0 t T (1 + K ) t =1 (1 + K )
CFt TVT + – C0 NPV = t T (1 + K) t = 1 (1 + K)
Σ
T
T
as:
NPV =
t=1
Σ
(OCFt)(1 – τ) + τ Dt (1 + K)t
TVT + – C0 T (1 + K)
18-8
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
CF2 = $250 CF3 = $500
18-11
NPV = –$56.50
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
Domestic APV Example (continued)
Now, imagine that the firm finances the project with $600 of debt at r = 8%. The tax rate is 40%, so they have an interest tax shield worth τ×I = .40×$600×.08 = $19.20 each year.
t=1
Σ
T
(OCFt)(1 – τ) (1 + Ku )t
+
τ Dt
(1 + i)t
+
τ It
(1 + i)t
TVT + – C0 T (1 + Ku)
Hale Waihona Puke $125 $250 $375 $500 + + + APV = 2 3 1.10 (1.10) (1.10) (1.10)4 $19.20 $19.20 $19.20 $19.20 + + + + – $1,000 2 3 4 1.08 (1.08) (1.08) (1.08) APV = $7.09 The firm should accept the project if it finances with debt.
T
Review of Domestic Capital Budgeting
For our purposes it is necessary to expand the NPV equation. CFt = (Rt – OCt – Dt – It)(1 – τ) + Dt + It (1 – τ)
INTERNATIONAL FINANCIAL MANAGEMENT
Fourth Edition EUN / RESNICK
18-0
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
International Capital Budgeting
18-2 Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
Review of Domestic Capital Budgeting
1. Identify the SIZE and TIMING of all relevant cash flows
Where: CFt = expected incremental after-tax cash flow in year t, TVT = expected after tax terminal value including return of net working capital, C0 = initial investment at inception, K = weighted average cost of capital. T = economic life of the project in years.
Chapter Objective:
18
Chapter Eighteen
INTERNATIONAL FINANCIAL MANAGEMENT
This chapter discusses the methodology that a multinational firm can use to analyze the Fourth investment of capital in a foreign country. Edition
18-12
Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
-$1,000 0
$125 1
$250 2
$375 3
$500 4
The APV of the project under leverage is: APV =
Rt is incremental revenue OCt is incremental operating cash flow Dt is incremental depreciation
18-6 Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
on a time line. 2. Identify the RISKINESS of the cash flows to determine the appropriate discount rate. 3. Find NPV by discounting the cash flows at the appropriate discount rate. 4. Compare the value of competing cash flow streams at the same point in time.
It is incremental interest expense τ is the marginal tax rate
Alternative Formulations CFt
CFt = (Rt – OCt – Dt – It)(1 – τ) + Dt + It (1 – τ) CFt = (NIt + Dt + It (1 – τ) CFt = (Rt – OCt – Dt(1 – τ) + Dt CFt = (NOIt)(1 – τ) + Dt CFt = (Rt – OCt)(1 – τ) + τ Dt CFt = (OCFt)(1 – τ) + τ Dt
-$1,000 0 $125 1 $250 2 $375 3 $500 4
CF0 CF1
The unlevered cost of equity is r0 = 10%: = –$1000 The project would be rejected by an all-equity firm: = $125 I = 10
18-7 Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
Review of Domestic Capital Budgeting
We can use CFt = (OCFt)(1 – τ) + τ Dt to restate the NPV equation
The Adjusted Present Value Model
APV =
t=1
Σ
T
(OCFt)(1 – τ) (1 + Ku )t
+
τ Dt
(1 + i)t
+
τ It
(1 + i)t
TVT + – C0 T (1 + Ku)