财务管理ppt英文课件Cha(9)

3
1,039
4
1,244
Discounted payback period is just under 3 years
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10
Ordinary & Discounted Payback
Cash Flow
Year Undiscounted Discounted
1
$100
$89
2
100
79
3
100
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8
Discounted Payback Period
Defined as the time it takes to recover the initial cash outlay (IO) on a present value basis
Compute the present value of each cash flow and then determine how long it takes to payback on a discounted basis
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7
Disadvantages of Payback Period
Time value of money and risk ignored. Ad hoc determination of acceptable payback period. Ignores cash flows beyond the cut-off date. Biased against long-term and new projects.
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4
Payback Period Illustrated
Initial outlay -$1 000
Year
1 2 3
Cash flow
$400 400 400
Year
1 2 3
Accumulated Cash flow
$400 800
1 200
Payback period =1000/400 = 2.5years
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1Leabharlann Baidu
Project Evaluation: Alternative Methods
Payback Period (PP)
Internal Rate of Return (IRR)
Net Present Value (NPV)
Profitability Index (PI)
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2
Independent Project
Compare to a specified required period Decision Rule - Accept the project if it pays
back on a discounted basis within the specified time
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9
Discounted Payback
70
4
100
Assume the project is independent of any other potential projects undertook.
Independent -- A project whose acceptance (or rejection) does not prevent the acceptance of other projects under consideration.
Example
Year 1 2 3 4
Cash flow $ 200
400 700 300
Initial outlay -$1,000 R = 10%
PV of Cash flow $ 182
331
526
205
Accumulated
Year
discounted cash flow
1
$ 182
2
513
Chapter 13
Capital Budgeting Techniques
Chapter Objectives
Discuss the various investment evaluation techniques, including their advantages and disadvantages.
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5
Payback Period Illustrated (con.)
Initial outlay -$1 000
Year
1 2 3
Cash flow
$200 400 600
Year
1 2 3
Accumulated Cash flow
$200 600
1 200
Payback period = 2+400/600= 2 2/3 years
Apply these techniques to the evaluation of projects.
Interpret the results of the application of these techniques in accordance with their respective decision rules.
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3
Payback Period
PP is the period of time required for the cumulative expected cash flows from an investment project to equal the initial cash outflow.
Computation
➢ Estimate the cash flows ➢ Subtract the future cash flows from the initial cost until
the initial investment has been recovered
Decision Rule – Accept if the payback period is less than some preset limit
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6
Advantages of Payback Period
No need for detailed analysis. Simple to calculate and understand. Adjusts for uncertainty of later cash flows. Biased towards liquidity.