财务成本管理英语

财务成本管理英语 Company number：【0089WT-8898YT-W8CCB-BUUT-202108】

INVESTMENT APPRAISAL

[对应中文教材2008年财务成本管理第五章:投资管理]

（已动用资本回报率）or ARR（会计收益率）（Accounting Rate of Return）

（回收期法）

Payback period

=Initial payment/Annual cash inflow, payback is not always an exact number of years Most common formula:

ROCE=EBIT （after depreciation）/ initial capital costs

C NPV（净现值法）

（1） Basic assumptions:

·cash outlay occurs in year 0 （now）.

·cash flows occur at the end of the year.

·if a cash flow occurs at the beginning of a year, it is assumed to occur at the end of the previous year.

D IRR（内含报酬率法）

（1）Basic principle: IRR is the cost of capital at which the NPV is zero, if the expected IRR is higher than a target rate of return; the project is financially worth undertaking.

（2）Selection between IRR and NPV: when a choice has to be made between mutually exclusive projects, in such case the NPV should be selected, because higher NPV can maximize sharehold er’s wealth.

Definition

The discount rat which, when applied to the cash flows of a project, gives an NPV of zero.

Or

The break-even interest rate for a project.

It is the maximum rate of interest that you could afford to pay on a project without making a loss.

Features

Advantages -Takes into account the time value of money

-Relative measure

-More readily understood than NPV

Disadvantages -May not be unique – projects can have more than one IRR

- May rank projects incorrectly – for mutually exclusive projects or when

Funds are short supply

- Cannot cope with changing rates of interest

The method of calculation depends upon whether or not the project has even cash flows.

Even cash flows

Consider an investment of ￡ that generates net cash earnings of ￡10m for 5 years The IRR is the discount rate that gives a NPV of zero. This means that the IRR is

the

Rate that will discount five installments of ￡10m to a present value of ￡. This

in turn

Means that the IRR is the discount rate for which the 5year annuity factor is . A The project’s IRR has been found via a cumulative discount factor （annuity

factor） given

By:

Annuity factor

at the IRR=

for the life of the project

Uneven cash flows

These have to be found by trial and error or by estimating using two present values.

Where:A=lower rate chosen=NPV at rate A

B=higher rate=NPV at rate B

It helps to get A and B as close to the true IRR as possible, but it doesn’t

matter whether

the resultant NPVs are positive, negative or one of each.

Some students prefer to use a common sense approach rather than a formula. Seeing

by now

Much NPV has fallen （from to） as the discount rate has risen from A to B, They find how much more the discount rate needs to rise to bring the NPV to zero.

Whether the formula is used or common sense, the calculation assumes a linear relationship

Between NPV and discount rate. In fact the relationship is not linear, hence the calculation

Is only approximate and （unless you have been lucky when guessing which discount rates to

use）you should not quote IRR’s calculated in this way to many, not to

any,decimal places –

unless the examiner asks you.

IRR of a perpetuity

The present value of a perpetuity is the annual cash flow divided by the discount rate

（expressed as a decimal. From this it follows that:

the IRR of a perpetuity ==100

Perpetuity: 永续年金

Method of presentation

A simple calculation such as those for Woods can be done on a single line. For larger projects

two possibilities exist:

（i） the cash budget approach

（ii） the tabular approach.

（1）Cash budget approach

Time012 3

￡’000￡’000￡’000￡’000

Investment（X）—— X

Advertising（X）（X） --

Working capital（X）--X

Materials （X）（X）（X）-

Labour —（X）（X）（X）

Overheads —（X）（X）（X）

Revenue ———X

————

Net cash flow （X）（X）（X） X

————

y% Discount factor1X X X

Present value（X）（X）（X）X

Net present value （￡’000）X

The cash budget approach is suitable for short projects with lots of different cash flows

Which change from year to year.

（2） Tabular approach

Time Cash flow y% Discount Present value

￡’000￡’000￡’000 0Investment（X）1（X）

0and 1 Advertising（X）X（X）

0Working capital（X）1（X）

0-9Materials（X）1（X）

1-10Labour and overheads（X）X（X）

1-10Revenue X X X

10Sales proceeds X X X

10WC recovery X X X

—Net present value （￡’000）X

The tabular approach is suitable for long projects with lots of different cash flows that are

The same from year to year （enabling annuity factors to be used）.

Picking the right figures

When carrying out discounted cash flow analysis it is important to select the right figures.

Ignore:

costs – amounts that have already been spent

– not a cash flow

values – not a cash flow

–incremental fixed costs （look out for the words “reapportioned fixed overheads”）

costs – taken into account by the discounting process

Include:

Those cash flows that are specifically received or incurred as a result of the acceptance of the project（future–incremental–cash flows）.

Asset replacement decision

Factors to be considered when making replacement decision are as follows:

·capital cost of new equipment;

·operating costs, increased repair and mai ntenance costs;

loss of productivity;

lower of quality and quantity of output;

One application of discounted cash flow is to make decisions concerned with the replacement of

Machinery. This applies to short – life assets that will need to be replaced in perpetuity （. motor

Cars or photocopiers）. As a machine gets older, it is likely to cost more to keep it running and its

Scrap value will decrease. The aim is to find the optimal replacement cycle for the machine,

. how often it should be replaced － before it becomes uneconomic to own.

A simple approach would involve finding the total cost of keeping an asset for

1,2,3 years, etc,

Then finding an average annual cost.

DCF Version

Now, each possible replacement cycle is treated as a project （1-year, 2-year, or 3-year project）.

You calculate the NPV of each project （rather than just the total cost）.

Instead of dividing the NPV’s by 1,2,or 3, they’re divided by the 1,2, or 3-year annuity factor

To find an equivalent annual cost.

Equivalent annual cost =