公司理财(双语)3present value(精选)
公司理财(全英版笔记)
Chapter 3①The balance sheet②The income statement③The statement of cash flows④tax①The balance sheetEquation: total assets=total liabilities + shareholders’ equityNet working capital(NWC)=current asset – current liabilities是指企业的流动资产总额减Balance sheetCurrent Assets Current Liabilities•Cash & Securities payables•Receivables short-term debt•Inventories ++ long-term liabilitiesFixed Assets +•Tangible Assets shareholders’ equity•Intangible AssetsBook value& market value②the income statementThe income statementSales revenue $135,000Less: cost of sales 108,000Gross profits 27,000Less: Operating expenses 13,500Operating profits 13,500Less: Financing expense 1,350Net profits before taxes 12,150Less: Taxes (15%) 1,823Net profits after taxes $10,327In the income statement below, what was the value of Home Depot’s EBIT in 2009?EBIT = total Revenues －costs －deprecation③the statement of cash flowsExample:Net income for your firm was $10,000 last year. The depreciation expense was $2,500; accounts receivable increased $1,250; accounts payable increased $800; and inventories increased by $2,000.What was the total cash flow from operations for the period?Net income: 10,000Depreciation: 2,500Accounts Receivable: (1,250)Accounts Payable: 800Inventories: (2,000)Cash flow from operations: 10,050Free Cash FlowFree Cash Flow is cash available for distribution to investors after the firm pays for new investments or additions to working capital.Free cash flow = (EBIT – taxes + dep.) - change in net working capital- cap. expenditures④tax: 1.corporate tax2.personal tax一,marginal tax rate二,average tax rateChapter4MuaEvaBook rate of ruturnFinancial ratio (财务比率) and shareholders ’ valueThe Dupont systemprice x shares outstanding)Market value added: Market capitalization minus book value of equty.Market-to-book ratio=equityof value book equity of value market ...................Economic Value Added(EV A)Total capitalization: long-term debt + equityAfter tax operating income = after-tax interest + net incomeEVA :Show the firm’s truly created valueincome earned – income requiredBook Rates of Returnreturn on capital(ROC)资本收益率ROC=after-tax operating income/total capitalizationROC=after-tax operating income/average total capitalizationReturn on asset(ROA)资产收益率ROA=after-tax operating income/total assetsROA=after-tax operating income/average total assetsReturn on equity(ROE)股本回报率，产权回报率ROE=net income/equity因为是operating income 在上章可知operating income 是financial expenses 之前的，故还未减去interest ，故要加after-taxinterset)PPT 中关于ROA ，ROC ，ROE 的练习Financial ratios and shareholders ’ valueEconomic Value Added Operating Income* - [Cost of Capital Total Capitalization]=⨯Shareholder value depends on good investment and financing decisions.Financial Ratios help measure the success and soundness of these decisionsEfficiency RatiosAsset turnover ratio=sales/total assets at start of yearOr=sales/average total assetsReceivables turnover=sales/receivables at start of yearAverage collection period=receivables at start of year/average daily sales=365/receivable turnoverInventory turnover ratio=cost of goods sold/inventory at start of yearAverage days in inventory=inventory at start of year/daily cost of goods sold=365/inventory turnoverProfitability RatiosProfit margin(利润率)=net income/sales(IOPM)Operating profit margin=net income +after-tax interest/sales=after-tax operating income/salesLeverage Ratios杠杆率(debt and equity)Long-term debt ratio=long-term debt/long-term debt+equityLong-term debt equity ratio=long-term debt/equityMeasuring LeverageTotal debt ratio=total liability/total assetsTimes interest earned（利息保障率,利息保障倍数）=EBIT/interest payments用于衡量偿付贷款利息的能力Cash coverage ratio（现金涵盖比率）=EBIT+depreciation/interest paymentsLiquidity Ratios(短期还债能力指标/流动性指标)NWC to total assets ratio(经营运资金比)=net working capital/total assets(Net working capital=current asset – current liabilities) Current ratio(流动比率)=current assets/current liabilities(短期还债能力的一个指标)Quick ratio(速动比率)=cash + marketable securities(有价证券) + receivables/current liabilitiesCash ratio(现金比率)=cash + marketable securities/current liabilitiesThe Dupont systemROA= after-tax operating income/asset=assets sales x sales....income operating tax after -=assets turnover x operating profit margin=leverage ratio x asset turnover x operating profit margin x debt burden股息支付率 再投资率Or call sustainable growth rateChapter 5Future valuePresent valuePv of multiple cash flowsPerpetuitiesAnnutitiesFuture value of annutitiesAnnuities and annuities due EAR & APRAssets Sales Net Income Interest Net Income ROE=x x x Equity Assets Sales Net Income Interest++Dividends Payout Ratio=Earnings Earnings-Dividends Plowback Ratio=Earnings Growth in equity from plowback = Plowback Ratio ROE Earnings - Dividends Earnings Earnings Equity ⨯=⨯Earnings-Dividends = EquityInflationValuing real cash paymentsFuture valueSimple interest: FV simple =initial investment*(1+r*t)Compound interest: FV compound =initial investment*(1+r)tPresent valueDiscount rate: rDiscount factor: DF=t r )1(1+ Present value: PV=FV*t r )1(1+ PV of multiple cash flowsCt=the cash flows in year tExample: Your auto dealer gives you the choice to pay $15,500 cash now or make threepayments: $8,000 now and $4,000 at the end of the following two years. If your cost of money (discount rate) is 8%, which do you prefer?PerpetuitiesPV of perpetuity: PV=C/rExample: In order to create an endowment, which pays $185,000 per year forever, how much money must be set aside today if the rate of interest is 8%?What if the first payment won’t be received until 3 years from today?PV = 2312,500 / (1 + 0.08)3= 1,835,662.5annuities124,0001(1.08)4,0002(1.08)Initial Payment* 8,000.003,703.703,429.36Total PV $15,133.06PV of C PV of C ++=====185,000.08$2,312,500PV ==Present value of an annuity: PV=C*[r 1-t r r )1(1+] The terms within the brackets are collectively called the “annuity factor ”PV of multiple cash flowsFuture value of annuitiesExample: You plan to save $4,000 every year for 20 years and then retire. Given a 10% rate ofAnnuities due(即付年金)（与普通年金（即后付年金）的区别仅在于付款时间的不同，一个n 期的即付年金相当于一个n-1期的普通年金）(期不等于年)PV annuitydue =PV annuity (1+r) FV annuity due =FV annuity(1+r) Example: Suppose you invest $429.59 annually at the beginning of each year at 10% interest. After 50 years, how much would your investment be worth?EAR & APREffective annual interest rate: The period interest rate that is annualized using compound interest.EAR = (1 + monthly rate)12 - 1Annual Percentage Rate: The period interest rate that is annualized using simple interest APR = monthly rate × 12Example : Given a monthly rate of 1%, what is the Effective Annual Rate(EAR)? What is the Annual Percentage Rate (APR)?Inflation000,550$)10.1()000,500($)1(=⨯=+⨯=AD AD Annuity AD FV FV r FV FV %00.12)12()01.0(%68.121)01.1(12=⨯==-=APR EAR 1+nominal interest rate1+inflation rate 1real interest rate=+Valuing real cash payments♦ Example: You make a loan of $5,000 to Jane who will pay it back in 1 year. The interestrate is 8%, and the inflation rate is 5% now. What is the present value of Jane’s IOU? Show that you get the same answer when (a) discounting the nominal payment at the nominal rate and (b) discounting the real payment at the real rate.♦ (a) 5,000 / (1 + 8%) = $4630(b) 5,000 / (1.05) = $4762 (real dollar)4762 / (1.028) = $4630(2.8% is real interest rate)不能用实际利率去贴现名义现金流Chapter 6bond pricing:example: For a $1000 face value bond with a bid price of 103:05 and an asked price of 103:06, how much would an investor pay for the bond?PV=1)1(r coupon ++2)1(r coupon ++…+t r par coupon )1(++ PV bond =PV coupon +PV parvalue=coupon*(annuity factor)+ par value * (discout factor)Example: What is the value of a 3-year annuity that pays $90 each year and an additional$1,000 at the date of the final repayment? Assume a discount rate of 4%.Warning: bond rate inflation -rate interest nominal rate interest Real ≈()()6103% 103.1875% 321.031875$1,000 $1,031.875of face value ⎛⎫+= ⎪⎝⎭⨯=331(1.04)1$90$1,000.04(1.04)$1,138.75Bond PV --+=⨯+⨯+=()()1(1)where 1and (1)Bond Coupons ParValue Bond t tPV PV PV PV coupon Annuity Factor par value Discount Factor r Annuity Factor rDiscount Factor r -=+=⨯+⨯-+==+The coupon rate IS NOT the discount rate used in the Present Value calculations Example: What is the present value of a 4% coupon bond with face value $1,000 that matures in 3 years? Assume a discount rate of 5%. Bond yields Current yield : annual coupon payments divided by bond priceExample:Suppose you spend $1,150 for a $1,000 face value bond that pays a $60 annual coupon payment for 3 years. What is the bond’s current yield?Yield to maturity:PV=1)1(r coupon ++2)1(r coupon ++…+t r par coupon )1(++ Bond rates of returnRate of return 只算一年的couponYTM vs rate of returnYTM ↑ (↓)(unchange) → the price of bond ↓ (↑) (unchange) → the rate of return for that period less (greater)(equal to) than the yield to maturity.Ytm 通过改变price 去改变p1-p0 从而改变rate of return ，由rate of return 公式得，p1-p0和其成正比，ytm 与change in price 成反比，故ytm 与其成反比Chapter 7Stock marketP/E ratio(本益比): price per share divided by earnings per shareAsk price & bid priceAsk price: the price at which current shareholders are willing to sell their sharesBid price: the price at which investors are willing to buy sharesTerminologyinvestment change price +income Coupon =return of Rate investmentincome total =return of Rate1,market cap. 2.P/E ratio 3.dividend yieldExample: You are considering investing in a firm whose shares are currently selling for $50 per share with 1,000,000 shares outstanding. Expected dividends are $2/share and earnings are $6/share.What is the firm’s Market Cap? P/E Ratio? Dividend Yield?Measure of value1. book value2. liquidation value3.market valueBV= Assets - liabilitiesLV = Assets selling price – LiabilitiesMV = Tangible & intangible assets + Inv. OpportunitiesPrice and intrinsic valueVo 内在价值Example: What is the intrinsic value of a share of stock if expected dividends are $2/shareand the expected price in 1 year is $35/share? Assume a discount rate of 10%.Expected return(ER)Valuing common stocksdividend discount modelconsider three simplying cases1. no growth2. constant growth3. noconstant growth Market Capitalization $501,000,000$50,000,000$50P/E Ratio 8.33$6$2Dividend Yield .044%$50=⨯======HH H r P Div r Div r Div P )1(...)1()1(22110+++++++=1.2.Example: What should the price of a share of stock be if the firm will pay a $4 dividend in 1year that is expected to grow at a constant rate of 5%? Assume a discount rate of 10%.3.Example:A firm is expected to pay $2/share in dividends next year. Those dividends are expected to grow by 8% for the next three years and 6% thereafter. If the discount rate is 10%, what is the current price of this security?Required rates of returnExample: What rate of return should an investor expect on a share of stock with a $2 expected dividend and 8% growth rate that sells today for $60?Sustainable growth rateExample: Suppose a firm that pays out 35% of earnings as dividends and expects its return on equity to be 10%. What is the expected growth rate?Valuing growth stocksWhere: EPS= Earnings per share PVGO = Present Value of Growth OpportunitiesSuppose a stock is selling today for $55/share and there are 10,000,000 shares outstanding. If earnings are projected to be $20,000,000, how much value are investors assigning to growth per share? Assume a discount rate of 10%.Return on Equity Plowback Rate = :g ROE bearnings dividends where b earnings=⨯⨯-=.10(1.35).065 6.5%g =⨯-==Chapter 8(NPV ,EAA,IRR) 第8章（ 重点复习单元）：净现值及其他投资准则，会算NPV ，计算EAA (P191页)，认识其他投评估指标（PP 回流期和 IRR 内含报酬率）及其判断准则（取大或取小），重点关注NPV 与IRR ，注意使用IRR 指标的前提是IRR<r （P199页）有关投资组合，要知道其大前提是资金是有约束的；单个项目的特征（可分/不可分），可分的单个项目之间的比较与排序用PI （收益指数）值来衡量，不可分的用各自的NPV 值来比较衡量，比较的前提是它们的寿命期是一样的，如果不一样的话就用最小共同寿命期法或等价年金法来比较 。
《公司理财》课后答案(英文版,第六版).doc
Chapter 2: Accounting Statements and Cash Flow2.10AssetsCurrent assetsCash $ 4,000Accounts receivable 8,000Total current assets $ 12,000Fixed assetsMachinery $ 34,000Patents 82,000Total fixed assets $116,000Total assets $128,000Liabilities and equityCurrent liabilitiesAccounts payable $ 6,000Taxes payable 2,000Total current liabilities $ 8,000Long-term liabilitiesBonds payable $7,000Stockholders equityCommon stock ($100 par) $ 88,000Capital surplus 19,000Retained earnings 6,000Total stockholders equity $113,000Total liabilities and equity $128,0002.11One year ago TodayLong-term debt $50,000,000 $50,000,000Preferred stock 30,000,000 30,000,000Common stock 100,000,000 110,000,000Retained earnings 20,000,000 22,000,000Total $200,000,000 $212,000,0002.12Total Cash Flow ofthe Stancil CompanyCash flows from the firmCapital spending $(1,000)Additions to working capital (4,000)Total $(5,000)Cash flows to investors of the firmShort-term debt $(6,000)Long-term debt (20,000)Equity (Dividend - Financing) 21,000Total $(5,000)[Note: This table isn’t the Statement of Cash Flows, which is only covered in Appendix 2B, since the latter has th e change in cash (on the balance sheet) as a final entry.]2.13 a. The changes in net working capital can be computed from:Sources of net working capitalNet income $100Depreciation 50Increases in long-term debt 75Total sources $225Uses of net working capitalDividends $50Increases in fixed assets* 150Total uses $200Additions to net working capital $25*Includes $50 of depreciation.b.Cash flow from the firmOperating cash flow $150Capital spending (150)Additions to net working capital (25)Total $(25)Cash flow to the investorsDebt $(75)Equity 50Total $(25)Chapter 3: Financial Markets and Net Present Value: First Principles of Finance (Advanced)3.14 $120,000 - ($150,000 - $100,000) (1.1) = $65,0003.15 $40,000 + ($50,000 - $20,000) (1.12) = $73,6003.16 a. ($7 million + $3 million) (1.10) = $11.0 millionb.i. They could spend $10 million by borrowing $5 million today.ii. They will have to spend $5.5 million [= $11 million - ($5 million x 1.1)] at t=1.Chapter 4: Net Present Valuea. $1,000 ⨯ 1.0510 = $1,628.89b. $1,000 ⨯ 1.0710 = $1,967.15c. $1,000 ⨯ 1.0520 = $2,653.30d. Interest compounds on the interest already earned. Therefore, the interest earned inSince this bond has no interim coupon payments, its present value is simply the present value of the $1,000 that will be received in 25 years. Note: As will be discussed in the next chapter, the present value of the payments associated with a bond is the price of that bond.PV = $1,000 /1.125 = $92.30PV = $1,500,000 / 1.0827 = $187,780.23a. At a discount rate of zero, the future value and present value are always the same. Remember, FV =PV (1 + r) t. If r = 0, then the formula reduces to FV = PV. Therefore, the values of the options are $10,000 and $20,000, respectively. You should choose the second option.b. Option one: $10,000 / 1.1 = $9,090.91Option two: $20,000 / 1.15 = $12,418.43Choose the second option.c. Option one: $10,000 / 1.2 = $8,333.33Option two: $20,000 / 1.25 = $8,037.55Choose the first option.d. You are indifferent at the rate that equates the PVs of the two alternatives. You know that rate mustfall between 10% and 20% because the option you would choose differs at these rates. Let r be thediscount rate that makes you indifferent between the options.$10,000 / (1 + r) = $20,000 / (1 + r)5(1 + r)4 = $20,000 / $10,000 = 21 + r = 1.18921r = 0.18921 = 18.921%The $1,000 that you place in the account at the end of the first year will earn interest for six years. The $1,000 that you place in the account at the end of the second year will earn interest for five years, etc. Thus, the account will have a balance of$1,000 (1.12)6 + $1,000 (1.12)5 + $1,000 (1.12)4 + $1,000 (1.12)3= $6,714.61PV = $5,000,000 / 1.1210 = $1,609,866.18a. $1.000 (1.08)3 = $1,259.71b. $1,000 [1 + (0.08 / 2)]2 ⨯ 3 = $1,000 (1.04)6 = $1,265.32c. $1,000 [1 + (0.08 / 12)]12 ⨯ 3 = $1,000 (1.00667)36 = $1,270.24d. $1,000 e0.08 ⨯ 3 = $1,271.25e. The future value increases because of the compounding. The account is earning interest on interest. Essentially, the interest is added to the account balance at the e nd of every compounding period. During the next period, the account earns interest on the new balance. When the compounding period shortens, the balance that earns interest is rising faster.The price of the consol bond is the present value of the coupon payments. Apply the perpetuity formula to find the present value. PV = $120 / 0.15 = $800a. $1,000 / 0.1 = $10,000b. $500 / 0.1 = $5,000 is the value one year from now of the perpetual stream. Thus, the value of theperpetuity is $5,000 / 1.1 = $4,545.45.c. $2,420 / 0.1 = $24,200 is the value two years from now of the perpetual stream. Thus, the value of the perpetuity is $24,200 / 1.12 = $20,000.pply the NPV technique. Since the inflows are an annuity you can use the present value of an annuity factor.ANPV = -$6,200 + $1,200 81.0= -$6,200 + $1,200 (5.3349)= $201.88Yes, you should buy the asset.Use an annuity factor to compute the value two years from today of the twenty payments. Remember, the annuity formula gives you the value of the stream one year before the first payment. Hence, the annuity factor will give you the value at the end of year two of the stream of payments.A= $2,000 (9.8181)Value at the end of year two = $2,000 20.008= $19,636.20The present value is simply that amount discounted back two years.PV = $19,636.20 / 1.082 = $16,834.88The easiest way to do this problem is to use the annuity factor. The annuity factor must be equal to $12,800 / $2,000 = 6.4; remember PV =C A T r. The annuity factors are in the appendix to the text. To use the factor table to solve this problem, scan across the row labeled 10 years until you find 6.4. It is close to the factor for 9%, 6.4177. Thus, the rate you will receive on this note is slightly more than 9%.You can find a more precise answer by interpolating between nine and ten percent.[ 10% ⎤[6.1446 ⎤a ⎡r ⎥bc ⎡6.4 ⎪ d⎣9%⎦⎣6.4177 ⎦By interpolating, you are presuming that the ratio of a to b is equal to the ratio of c to d.(9 - r ) / (9 - 10) = (6.4177 - 6.4 ) / (6.4177 - 6.1446)r = 9.0648%The exact value could be obtained by solving the annuity formula for the interest rate. Sophisticated calculators can compute the rate directly as 9.0626%.[Note: A standard financial calculator’s TVM keys can solve for this rate. With annuity flows, the IRR key on “advanced” financial c alculators is unnecessary.]a. The annuity amount can be computed by first calculating the PV of the $25,000 which youThat amount is $17,824.65 [= $25,000 / 1.075]. Next compute the annuity which has the same present value.A$17,824.65 = C 507.0$17,824.65 = C (4.1002)C = $4,347.26Thus, putting $4,347.26 into the 7% account each year will provide $25,000 five years from today.b. The lump sum payment must be the present value of the $25,000, i.e., $25,000 / 1.075 =$17,824.65The formula for future value of any annuity can be used to solve the problem (see footnote 11 of the text).Option one: This cash flow is an annuity due. To value it, you must use the after-tax amounts. Theafter-tax payment is $160,000 (1 - 0.28) = $115,200. Value all except the first payment using the standard annuity formula, then add back the first payment of $115,200 to obtain the value of this option.AValue = $115,200 + $115,200 30.010= $115,200 + $115,200 (9.4269)= $1,201,178.88Option two: This option is valued similarly. You are able to have $446,000 now; this is already on an after-tax basis. You will receive an annuity of $101,055 for each of the next thirty years. Those payments are taxable when you receive them, so your after-tax payment is $72,759.60 [= $101,055 (1 - 0.28)].AValue = $446,000 + $72,759.60 30.010= $446,000 + $72,759.60 (9.4269)= $1,131,897.47Since option one has a higher PV, you should choose it.et r be the rate of interest you must earn.$10,000(1 + r)12 = $80,000(1 + r)12= 8r = 0.18921 = 18.921%First compute the present value of all the payments you must make for your children’s educati on. The value as of one year before matriculation of one child’s education isA= $21,000 (2.8550) = $59,955.$21,000 415.0This is the value of the elder child’s education fourteen years from now. It is the value of the younger child’s education sixteen years from today. The present value of these isPV = $59,955 / 1.1514 + $59,955 / 1.1516= $14,880.44You want to make fifteen equal payments into an account that yields 15% so that the present value of the equal payments is $14,880.44.A= $14,880.44 / 5.8474 = $2,544.80Payment = $14,880.44 / 15.015This problem applies the growing annuity formula. The first payment is$50,000(1.04)2(0.02) = $1,081.60.PV = $1,081.60 [1 / (0.08 - 0.04) - {1 / (0.08 - 0.04)}{1.04 / 1.08}40]= $21,064.28This is the present value of the payments, so the value forty years from today is$21,064.28 (1.0840) = $457,611.46se the discount factors to discount the individual cash flows. Then compute the NPV of the project. NoticeYou can still use the factor tables to compute their PV. Essentially, they form cash flows that are a six year annuity less a two year annuity. Thus, the appropriate annuity factor to use with them is 2.6198 (= 4.3553 - 1.7355).Year Cash Flow Factor PV0.9091 $636.371$70020.8264 743.769003 1,000 ⎤4 1,000 ⎥ 2.6198 2,619.805 1,000 ⎥6 1,000 ⎦7 1,250 0.5132 641.508 1,375 0.4665 641.44Total $5,282.87NPV = -$5,000 + $5,282.87= $282.87Purchase the machine.Chapter 5: How to Value Bonds and StocksThe amount of the semi-annual interest payment is $40 (=$1,000 ⨯ 0.08 / 2). There are a total of 40 periods;i.e., two half years in each of the twenty years in the term to maturity. The annuity factor tables can be usedto price these bonds. The appropriate discount rate to use is the semi-annual rate. That rate is simply the annual rate divided by two. Thus, for part b the rate to be used is 5% and for part c is it 3%.A+F/(1+r)40PV=C Tra. $40 (19.7928) + $1,000 / 1.0440 = $1,000Notice that whenever the coupon rate and the market rate are the same, the bond is priced at par.b. $40 (17.1591) + $1,000 / 1.0540 = $828.41Notice that whenever the coupon rate is below the market rate, the bond is priced below par.c. $40 (23.1148) + $1,000 / 1.0340 = $1,231.15Notice that whenever the coupon rate is above the market rate, the bond is priced above par.a. The semi-annual interest rate is $60 / $1,000 = 0.06. Thus, the effective annual rate is 1.062 - 1 =0.1236 = 12.36%.A+ $1,000 / 1.0612b. Price = $30 12.006= $748.48A+ $1,000 / 1.0412c. Price = $30 1204.0= $906.15Note: In parts b and c we are implicitly assuming that the yield curve is flat. That is, the yield in year 5applies for year 6 as well.rice = $2 (0.72) / 1.15 + $4 (0.72) / 1.152 + $50 / 1.153= $36.31The number of shares you own = $100,000 / $36.31 = 2,754 sharesPrice = $1.15 (1.18) / 1.12 + $1.15 (1.182) / 1.122 + $1.152 (1.182) / 1.123+ {$1.152 (1.182)(1.06) / (0.12 - 0.06)} / 1.123= $26.95[Insert before last sentence of question: Assume that dividends are a fixed proportion of earnings.] Dividend one year from now = $5 (1 - 0.10) = $4.50Price = $5 + $4.50 / {0.14 - (-0.10)}= $23.75Since the current $5 dividend has not yet been paid, it is still included in the stock price.Chapter 6: Some Alternative Investment Rulesa. Payback period of Project A = 1 + ($7,500 - $4,000) / $3,500 = 2 yearsPayback period of Project B = 2 + ($5,000 - $2,500 -$1,200) / $3,000 = 2.43 yearsProject A should be chosen.b. NPV A = -$7,500 + $4,000 / 1.15 + $3,500 / 1.152 + $1,500 / 1.153 = -$388.96NPV B = -$5,000 + $2,500 / 1.15 + $1,200 / 1.152 + $3,000 / 1.153 = $53.83Project B should be chosen.a. Average Investment:($16,000 + $12,000 + $8,000 + $4,000 + 0) / 5 = $8,000Average accounting return:$4,500 / $8,000 = 0.5625 = 56.25%b. 1. AAR does not consider the timing of the cash flows, hence it does not consider the timevalue of money.2. AAR uses an arbitrary firm standard as the decision rule.3. AAR uses accounting data rather than net cash flows.aAverage Investment = (8000 + 4000 + 1500 + 0)/4 = 3375.00Average Net Income = 2000(1-0.75) = 1500=> AAR = 1500/3375=44.44%a. Solve x by trial and error:-$8,000 + $4,000 / (1 + x) + $3000 / (1 + x)2 + $2,000 / (1 + x)3 = 0x = 6.93%b. No, since the IRR (6.93%) is less than the discount rate of 8%.Alternatively, the NPV @ a discount rate of 0.08 = -$136.62.a. Solve r in the equation:$5,000 - $2,500 / (1 + r) - $2,000 / (1 + r)2 - $1,000 / (1 + r)3- $1,000 / (1 + r)4 = 0By trial and error,IRR = r = 13.99%b. Since this problem is the case of financing, accept the project if the IRR is less than the required rate of return.IRR = 13.99% > 10%Reject the offer.c. IRR = 13.99% < 20%Accept the offer.d. When r = 10%:NPV = $5,000 - $2,500 / 1.1 - $2,000 / 1.12 - $1,000 / 1.13 - $1,000 / 1.14When r = 20%:NPV = $5,000 - $2,500 / 1.2 - $2,000 / 1.22 - $1,000 / 1.23 - $1,000 / 1.24= $466.82Yes, they are consistent with the choices of the IRR rule since the signs of the cash flows change only once.A/ $160,000 = 1.04PI = $40,000 715.0Since the PI exceeds one accept the project.Chapter 7: Net Present Value and Capital BudgetingSince there is uncertainty surrounding the bonus payments, which McRae might receive, you must use the expected value of McRae’s bonuses in the computation of the PV of his contract. McRae’s salary plus the expected value of his bonuses in years one through three is$250,000 + 0.6 ⨯ $75,000 + 0.4 ⨯ $0 = $295,000.Thus the total PV of his three-year contract isPV = $400,000 + $295,000 [(1 - 1 / 1.12363) / 0.1236]+ {$125,000 / 1.12363} [(1 - 1 / 1.123610 / 0.1236]= $1,594,825.68EPS = $800,000 / 200,000 = $4NPVGO = (-$400,000 + $1,000,000) / 200,000 = $3Price = EPS / r + NPVGO= $4 / 0.12 + $3=$36.33Year 0 Year 1 Year 2 Year 3 Year 4 Year 51. Annual Salary$120,000 $120,000 $120,000 $120,000 $120,000 Savings2. Depreciation 100,000 160,000 96,000 57,600 57,6003. Taxable Income 20,000 -40,000 24,000 62,400 62,4004. Taxes 6,800 -13,600 8,160 21,216 21,2165. Operating Cash Flow113,200 133,600 111,840 98,784 98,784 (line 1-4)$100,000 -100,0006. ∆ Net workingcapital7. Investment $500,000 75,792*8. Total Cash Flow -$400,000 $113,200 $133,600 $111,840 $98,784 $74,576*75,792 = $100,000 - 0.34 ($100,000 - $28,800)NPV = -$400,000+ $113,200 / 1.12 + $133,600 / 1.122 + $111,840 / 1.123+ $98,784 / 1.124 + $74,576 / 1.125= -$7,722.52Real interest rate = (1.15 / 1.04) - 1 = 10.58%NPV A = -$40,000+ $20,000 / 1.1058 + $15,000 / 1.10582 + $15,000 / 1.10583= $1,446.76NPV B = -$50,000+ $10,000 / 1.15 + $20,000 / 1.152 + $40,000 / 1.153= $119.17Choose project A.PV = $120,000 / {0.11 - (-0.06)}t = 0 t = 1 t = 2 t = 3 t = 4 t = 5 t = 6 ...$12,000 $6,000 $6,000 $6,000$4,000$12,000 $6,000 $6,000 ...The present value of one cycle is:A+ $4,000 / 1.064PV = $12,000 + $6,000 306.0= $12,000 + $6,000 (2.6730) + $4,000 / 1.064= $31,206.37The cycle is four years long, so use a four year annuity factor to compute the equivalent annual cost (EAC).AEAC = $31,206.37 / 406.0= $31,206.37 / 3.4651= $9,006The present value of such a stream in perpetuity is$9,006 / 0.06 = $150,100o evaluate the word processors, compute their equivalent annual costs (EAC).BangAPV(costs) = (10 ⨯ $8,000) + (10 ⨯ $2,000) 414.0= $80,000 + $20,000 (2.9137)= $138,274EAC = $138,274 / 2.9137= $47,456IOUAPV(costs) = (11 ⨯ $5,000) + (11 ⨯ $2,500) 3.014- (11 ⨯ $500) / 1.143= $55,000 + $27,500 (2.3216) - $5,500 / 1.143= $115,132EAC = $115,132 / 2.3216= $49,592BYO should purchase the Bang word processors.Chapter 8: Strategy and Analysis in Using Net Present ValueThe accounting break-even= (120,000 + 20,000) / (1,500 - 1,100)= 350 units. The accounting break-even= 340,000 / (2.00 - 0.72)= 265,625 abalonesb. [($2.00 ⨯ 300,000) - (340,000 + 0.72 ⨯ 300,000)] (0.65)= $28,600This is the after tax profit.Chapter 9: Capital Market Theory: An Overviewa. Capital gains = $38 - $37 = $1 per shareb. Total dollar returns = Dividends + Capital Gains = $1,000 + ($1*500) = $1,500 On a per share basis, this calculation is $2 + $1 = $3 per sharec. On a per share basis, $3/$37 = 0.0811 = 8.11% On a total dollar basis, $1,500/(500*$37) = 0.0811 = 8.11%d. No, you do not need to sell the shares to include the capital gains in the computation of the returns. The capital gain is included whether or not you realize the gain. Since you could realize the gain if you choose, you should include it.The expected holding period return is:()[]%865.1515865.052$/52$75.54$50.5$==-+There appears to be a lack of clarity about the meaning of holding period returns. The method used in the answer to this question is the one used in Section 9.1. However, the correspondence is not exact, because in this question, unlike Section 9.1, there are cash flows within the holding period. The answer above ignores the dividend paid in the first year. Although the answer above technically conforms to the eqn at the bottom of Fig. 9.2, the presence of intermediate cash flows that aren’t accounted for renders th is measure questionable, at best. There is no similar example in the body of the text, and I have never seen holding period returns calculated in this way before.Although not discussed in this book, there are two generally accepted methods of computing holding period returns in the presence of intermediate cash flows. First, the time weighted return calculates averages (geometric or arithmetic) of returns between cash flows. Unfortunately, that method can’t be used here, because we are not given the va lue of the stock at the end of year one. Second, the dollar weighted measure calculates the internal rate of return over the entire holding period. Theoretically, that method can be applied here, as follows: 0 = -52 + 5.50/(1+r) + 60.25/(1+r)2 => r = 0.1306.This produces a two year holding period return of (1.1306)2 – 1 = 0.2782. Unfortunately, this book does not teach the dollar weighted method.In order to salvage this question in a financially meaningful way, you would need the value of the stock at the end of one year. Then an illustration of the correct use of the time-weighted return would be appropriate. A complicating factor is that, while Section 9.2 illustrates the holding period return using the geometric return for historical data, the arithmetic return is more appropriate for expected future returns.E(R) = T-Bill rate + Average Excess Return = 6.2% + (13.0% -3.8%) = 15.4%. Common Treasury Realized Stocks Bills Risk Premium -7 32.4% 11.2% 21.2%-6 -4.9 14.7 -19.6-5 21.4 10.5 10.9 -4 22.5 8.8 13.7 -3 6.3 9.9 -3.6 -2 32.2 7.7 24.5 Last 18.5 6.2 12.3 b. The average risk premium is 8.49%.49.873.125.246.37.139.106.192.21=++-++- c. Yes, it is possible for the observed risk premium to be negative. This can happen in any single year. The.b.Standard deviation = 03311.0001096.0=.b.Standard deviation = = 0.03137 = 3.137%.b.Chapter 10: Return and Risk: The Capital-Asset-Pricing Model (CAPM)a. = 0.1 (– 4.5%) + 0.2 (4.4%) + 0.5 (12.0%) + 0.2 (20.7%) = 10.57%b.σ2 = 0.1 (–0.045 – 0.1057)2 + 0.2 (0.044 – 0.1057)2 + 0.5 (0.12 – 0.1057)2+ 0.2 (0.207 – 0.1057)2 = 0.0052σ = (0.0052)1/2 = 0.072 = 7.20%Holdings of Atlas stock = 120 ⨯ $50 = $6,000 ⨯ $20 = $3,000Weight of Atlas stock = $6,000 / $9,000 = 2 / 3Weight of Babcock stock = $3,000 / $9,000 = 1 / 3a. = 0.3 (0.12) + 0.7 (0.18) = 0.162 = 16.2%σP 2= 0.32 (0.09)2 + 0.72 (0.25)2 + 2 (0.3) (0.7) (0.09) (0.25) (0.2)= 0.033244σP= (0.033244)1/2 = 0.1823 = 18.23%a.State Return on A Return on B Probability1 15% 35% 0.4 ⨯ 0.5 = 0.22 15% -5% 0.4 ⨯ 0.5 = 0.23 10% 35% 0.6 ⨯ 0.5 = 0.34 10% -5% 0.6 ⨯ 0.5 = 0.3b. = 0.2 [0.5 (0.15) + 0.5 (0.35)] + 0.2[0.5 (0.15) + 0.5 (-0.05)]+ 0.3 [0.5 (0.10) + 0.5 (0.35)] + 0.3 [0.5 (0.10) + 0.5 (-0.05)]= 0.135= 13.5%Note: The solution to this problem requires calculus.Specifically, the solution is found by minimizing a function subject to a constraint. Calculus ability is not necessary to understand the principles behind a minimum variance portfolio.Min { X A2 σA2 + X B2σB2+ 2 X A X B Cov(R A , R B)}subject to X A + X B = 1Let X A = 1 - X B. Then,Min {(1 - X B)2σA2 + X B2σB2+ 2(1 - X B) X B Cov (R A, R B)}Take a derivative with respect to X B.d{∙} / dX B = (2 X B - 2) σA2+ 2 X B σB2 + 2 Cov(R A, R B) - 4 X B Cov(R A, R B)Set the derivative equal to zero, cancel the common 2 and solve for X B.X BσA2- σA2+ X B σB2 + Cov(R A, R B) - 2 X B Cov(R A, R B) = 0X B = {σA2 - Cov(R A, R B)} / {σA2+ σB2 - 2 Cov(R A, R B)}andX A = {σB2 - Cov(R A, R B)} / {σA2+ σB2 - 2 Cov(R A, R B)}Using the data from the problem yields,X A = 0.8125 andX B = 0.1875.a. Using the weights calculated above, the expected return on the minimum variance portfolio isE(R P) = 0.8125 E(R A) + 0.1875 E(R B)= 0.8125 (5%) + 0.1875 (10%)= 5.9375%b. Using the formula derived above, the weights areX A = 2 / 3 andX B = 1 / 3c. The variance of this portfolio is zero.σP 2= X A2 σA2 + X B2σB2+ 2 X A X B Cov(R A , R B)= (4 / 9) (0.01) + (1 / 9) (0.04) + 2 (2 / 3) (1 / 3) (-0.02)= 0This demonstrates that assets can be combined to form a risk-free portfolio.14.2%= 3.7%+β(7.5%) ⇒β = 1.40.25 = R f + 1.4 [R M– R f] (I)0.14 = R f + 0.7 [R M– R f] (II)(I) – (II)=0.11 = 0.7 [R M– R f] (III)[R M– R f ]= 0.1571Put (III) into (I) 0.25 = R f + 1.4[0.1571]R f = 3%[R M– R f ]= 0.1571R M = 0.1571 + 0.03= 18.71%a. = 4.9% + βi (9.4%)βD= Cov(R D, R M) / σM 2 = 0.0635 / 0.04326 = 1.468= 4.9 + 1.468 (9.4) = 18.70%Weights:X A = 5 / 30 = 0.1667X B = 10 / 30 = 0.3333X C = 8 / 30 = 0.2667X D = 1 - X A - X B - X C = 0.2333Beta of portfolio= 0.1667 (0.75) + 0.3333 (1.10) + 0.2667 (1.36) + 0.2333 (1.88)= 1.293= 4 + 1.293 (15 - 4) = 18.22%a. (i) βA= ρA,MσA / σMρA,M= βA σM / σA= (0.9) (0.10) / 0.12= 0.75(ii) σB= βB σM / ρB,M= (1.10) (0.10) / 0.40= 0.275(iii) βC= ρC,MσC / σM= (0.75) (0.24) / 0.10= 1.80(iv) ρM,M= 1(v) βM= 1(vi) σf= 0(vii) ρf,M= 0(viii) βf= 0b. SML:E(R i) = R f + βi {E(R M) - R f}= 0.05 + (0.10) βiSecurity βi E(R i)A 0.13 0.90 0.14B 0.16 1.10 0.16C 0.25 1.80 0.23Security A performed worse than the market, while security C performed better than the market.Security B is fairly priced.c. According to the SML, security A is overpriced while security C is under-priced. Thus, you could invest in security C while sell security A (if you currently hold it).a. The typical risk-averse investor seeks high returns and low risks. To assess thetwo stocks, find theReturns:State of economy ProbabilityReturn on A*Recession 0.1 -0.20 Normal 0.8 0.10 Expansion0.10.20* Since security A pays no dividend, the return on A is simply (P 1 / P 0) - 1. = 0.1 (-0.20) + 0.8 (0.10) + 0.1 (0.20) = 0.08 = 0.09 This was given in the problem.Risk:R A - (R A -)2 P ⨯ (R A -)2 -0.28 0.0784 0.00784 0.02 0.0004 0.00032 0.12 0.0144 0.00144 Variance 0.00960Standard deviation (R A ) = 0.0980βA = {Corr(R A , R M ) σ(R A )} / σ(R M ) = 0.8 (0.0980) / 0.10= 0.784βB = {Corr(R B , R M ) σ(R B )} / σ(R M ) = 0.2 (0.12) / 0.10= 0.24The return on stock B is higher than the return on stock A. The risk of stock B, as measured by itsbeta, is lower than the risk of A. Thus, a typical risk-averse investor will prefer stock B.b. = (0.7) + (0.3) = (0.7) (0.8) + (0.3) (0.09) = 0.083σP 2= 0.72 σA 2 + 0.32 σB 2 + 2 (0.7) (0.3) Corr (R A , R B ) σA σB = (0.49) (0.0096) + (0.09) (0.0144) + (0.42) (0.6) (0.0980) (0.12) = 0.0089635 σP = = 0.0947 c. The beta of a portfolio is the weighted average of the betas of the components of the portfolio. βP = (0.7) βA + (0.3) βB = (0.7) (0.784) + (0.3) (0.240) = 0.621Chapter 11:An Alternative View of Risk and Return: The Arbitrage Pricing Theorya. Stock A:()()R R R R R A A A m m Am A=+-+=+-+βεε105%12142%...Stock B:()()R R R R R B B m m Bm B=+-+=+-+βεε130%098142%...Stock C:()R R R R R C C C m m Cm C=+-+=+-+βεε157%137142%)..(.b.()[]()[]()[]()()()()()()[]()()CB A m cB A m c m B m A m CB A P 25.045.030.0%2.14R 1435.1%925.1225.045.030.0%2.14R 37.125.098.045.02.130.0%7.1525.0%1345.0%5.1030.0%2.14R 37.1%7.1525.0%2.14R 98.0%0.1345.0%2.14R 2.1%5.1030.0R 25.0R 45.0R 30.0R ε+ε+ε+-+=ε+ε+ε+-+++++=ε+-++ε+-++ε+-+=++= c.i.()R R R A B C =+-==+-==+-=105%1215%142%)1113%09815%142%)137%157%13715%142%168%..(..46%.(......ii.R P =+-=12925%1143515%142%)138398%..(..To determine which investment investor would prefer, you must compute the variance of portfolios created bymany stocks from either market. Note, because you know that diversification is good, it is reasonable to assume that once an investor chose the market in which he or she will invest, he or she will buy many stocks in that market.Known:E EF ====001002 and and for all i.i σσεε..Assume: The weight of each stock is 1/N; that is, X N i =1/for all i.If a portfolio is composed of N stocks each forming 1/N proportion of the portfolio, the return on the portfolio is 1/N times the sum of the returns on the N stocks. Recall that the return on each stock is 0.1+βF+ε.()()()()()()[]()()()()()()()[]()[]()[]()()[]()()()()()j i 2j i 22j i i 2222222222P P P P iP ,0.04Corr 0.01,Cov s =isvariance the ,N as limit In the ,Cov 1/N 1s 1/N s )(1/N 1/N F 2F E 1/N F E 0.10.1/N F 0.1E R E R E R Var 0.101/N 00.1E 1/N F E 0.11/N F 0.1E R E 1/N F 0.1F 0.1(1/N)R 1/N R εε+β=εε+β∞⇒εε-+ε+β=ε∑+εβ+β=ε+β=-ε+β+=-==+β+=ε+β+=ε∑+β+=ε+β+=ε+β+==∑∑∑∑∑∑∑∑()()()()()()Thus,F R f E R E R Var R Corr Var R Corr ii ip P p i j PijR 1i =++=++===+=+010*********002250040002500412212111222.........,,εεεεεεa.()()()()Corr Corr Var R Var R i j i j p pεεεε112212000225000225,,..====Since Var ()()R p 1 Var R 2p 〉, a risk averse investor will prefer to invest in the second market.b. Corr ()()εεεε112090i j j ,.,== and Corr 2i()()Var R Var R pp120058500025==..。
(公司理财)英文版罗斯公司理财习题答案C
CHAPTER 20INTERNATIONAL CORPORATE FINANCEAnswers to Concepts Review and Critical Thinking Questions1. a.The dollar is selling at a premium because it is more expensive in the forward market than inthe spot market (SFr 1.53 versus SFr 1.50).b.The franc is expected to depreciate relative to the dollar because it will take more francs to buyone dollar in the future than it does today.c.Inflation in Switzerland is higher than in the United States, as are nominal interest rates.2.The exchange rate will increase, as it will take progressively more pesos to purchase a dollar. This isthe relative PPP relationship.3. a.The Australian dollar is expected to weaken relative to the dollar, because it will take moreA$ in the future to buy one dollar than it does today.b.The inflation rate in Australia is higher.c.Nominal interest rates in Australia are higher; relative real rates in the two countries are thesame.4. A Yankee bond is most accurately described by d.5. No. For example, if a country’s currency strengthens, imports become cheaper (good), but its exportsbecome more expensive for others to buy (bad). The reverse is true for currency depreciation.6.Additional advantages include being closer to the final consumer and, thereby, saving ontransportation, significantly lower wages, and less exposure to exchange rate risk. Disadvantages include political risk and costs of supervising distant operations.7.One key thing to remember is that dividend payments are made in the home currency. Moregenerally, it may be that the owners of the multinational are primarily domestic and are ultimately concerned about their wealth denominated in their home currency because, unlike a multinational, they are not internationally diversified.8. a.False. If prices are rising faster in Great Britain, it will take more pounds to buy the sameamount of goods that one dollar can buy; the pound will depreciate relative to the dollar.b.False. The forward market would already reflect the projected deterioration of the euro relativeto the dollar. Only if you feel that there might be additional, unanticipated weakening of the euro that isn’t reflected in forward rates today, will the forward hedge protect you against additional declines.c.True. The market would only be correct on average, while you would be correct all the time.9. a.American exporters: their situation in general improves because a sale of the exported goods fora fixed number of euros will be worth more dollars.American importers: their situation in general worsens because the purchase of the imported goods for a fixed number of euros will cost more in dollars.b.American exporters: they would generally be better off if the British government’s intentionsresult in a strengthened pound.American importers: they would generally be worse off if the pound strengthens.c.American exporters: they would generally be much worse off, because an extreme case of fiscalexpansion like this one will make American goods prohibitively expensive to buy, or else Brazilian sales, if fixed in cruzeiros, would become worth an unacceptably low number of dollars.American importers: they would generally be much better off, because Brazilian goods will become much cheaper to purchase in dollars.10.IRP is the most likely to hold because it presents the easiest and least costly means to exploit anyarbitrage opportunities. Relative PPP is least likely to hold since it depends on the absence of market imperfections and frictions in order to hold strictly.11.It all depends on whether the forward market expects the same appreciation over the period andwhether the expectation is accurate. Assuming that the expectation is correct and that other traders do not have the same information, there will be value to hedging the currency exposure.12.One possible reason investment in the foreign subsidiary might be preferred is if this investmentprovides direct diversification that shareholders could not attain by investing on their own. Another reason could be if the political climate in the foreign country was more stable than in the home country. Increased political risk can also be a reason you might prefer the home subsidiary investment. Indonesia can serve as a great example of political risk. If it cannot be diversified away, investing in this type of foreign country will increase the systematic risk. As a result, it will raise the cost of the capital, and could actually decrease the NPV of the investment.13.Yes, the firm should undertake the foreign investment. If, after taking into consideration all risks, aproject in a foreign country has a positive NPV, the firm should undertake it. Note that in practice, the stated assumption (that the adjustment to the discount rate has taken into consideration all political and diversification issues) is a huge task. But once that has been addressed, the net present value principle holds for foreign operations, just as for domestic.14.If the foreign currency depreciates, the U.S. parent will experience an exchange rate loss when theforeign cash flow is remitted to the U.S. This problem could be overcome by selling forward contracts. Another way of overcoming this problem would be to borrow in the country where the project is located.15.False. If the financial markets are perfectly competitive, the difference between the Eurodollar rateand the U.S. rate will be due to differences in risk and government regulation. Therefore, speculating in those markets will not be beneficial.16.The difference between a Eurobond and a foreign bond is that the foreign bond is denominated in thecurrency of the country of origin of the issuing company. Eurobonds are more popular than foreign bonds because of registration differences. Eurobonds are unregistered securities.Solutions to Questions and ProblemsNOTE: All end-of-chapter problems were solved using a spreadsheet. Many problems require multiple steps. Due to space and readability constraints, when these intermediate steps are included in this solutions manual, rounding may appear to have occurred. However, the final answer for each problem is found without rounding during any step in the problem.Basicing the quotes from the table, we get:a.$50(€0.7870/$1) = €39.35b.$1.2706c.€5M($1.2706/€) = $6,353,240d.New Zealand dollare.Mexican pesof.(P11.0023/$1)($1.2186/€1) = P13.9801/€This is a cross rate.g.The most valuable is the Kuwait dinar. The least valuable is the Indonesian rupiah.2. a.You would prefer £100, since:(£100)($.5359/£1) = $53.59b.You would still prefer £100. Using the $/£ exchange rate and the SF/£ exchange rate to find theamount of Swiss francs £100 will buy, we get:(£100)($1.8660/£1)(SF .8233) = SF 226.6489ing the quotes in the book to find the SF/£ cross rate, we find:(SF 1.2146/$1)($0.5359/£1) = SF 2.2665/£1The £/SF exchange rate is the inverse of the SF/£ exchange rate, so:£1/SF .4412 = £0.4412/SF 13. a.F180= ¥104.93 (per $). The yen is selling at a premium because it is more expensive in theforward market than in the spot market ($0.0093659 versus $0.009530).b.F90 = $1.8587/£. The pound is selling at a discount because it is less expensive in the forwardmarket than in the spot market ($0.5380 versus $0.5359).c.The value of the dollar will fall relative to the yen, since it takes more dollars to buy one yen inthe future than it does today. The value of the dollar will rise relative to the pound, because it will take fewer dollars to buy one pound in the future than it does today.4. a.The U.S. dollar, since one Canadian dollar will buy:(Can$1)/(Can$1.26/$1) = $0.7937b.The cost in U.S. dollars is:(Can$2.19)/(Can$1.26/$1) = $1.74Among the reasons that absolute PPP doe sn’t hold are tariffs and other barriers to trade, transactions costs, taxes, and different tastes.c.The U.S. dollar is selling at a discount, because it is less expensive in the forward market thanin the spot market (Can$1.22 versus Can$1.26).d.The Canadian dollar is expected to appreciate in value relative to the dollar, because it takesfewer Canadian dollars to buy one U.S. dollar in the future than it does today.e.Interest rates in the United States are probably higher than they are in Canada.5. a.The cross rate in ¥/£ terms is:(¥115/$1)($1.70/£1) = ¥195.5/£1b.The yen is quoted too low relative to the pound. Take out a loan for $1 and buy ¥115. Use the¥115 to purchase pounds at the cross-rate, which will give you:¥115(£1/¥185) = £0.6216Use the pounds to buy back dollars and repay the loan. The cost to repay the loan will be:£0.6216($1.70/£1) = $1.0568You arbitrage profit is $0.0568 per dollar used.6.We can rearrange the interest rate parity condition to answer this question. The equation we will useis:R FC = (F T– S0)/S0 + R USUsing this relationship, we find:Great Britain: R FC = (£0.5394 – £0.5359)/£0.5359 + .038 = 4.45%Japan: R FC = (¥104.93 – ¥106.77)/¥106.77 + .038 = 2.08%Switzerland: R FC = (SFr 1.1980 – SFr 1.2146)/SFr 1.2146 + .038 = 2.43%7.If we invest in the U.S. for the next three months, we will have:$30M(1.0045)3 = $30,406,825.23If we invest in Great Britain, we must exchange the dollars today for pounds, and exchange the pounds for dollars in three months. After making these transactions, the dollar amount we would have in three months would be:($30M)(£0.56/$1)(1.0060)3/(£0.59/$1) = $28,990,200.05We should invest in U.S.ing the relative purchasing power parity equation:F t = S0 × [1 + (h FC– h US)]tWe find:Z3.92 = Z3.84[1 + (h FC– h US)]3h FC– h US = (Z3.92/Z3.84)1/3– 1h FC– h US = .0069Inflation in Poland is expected to exceed that in the U.S. by 0.69% over this period.9.The profit will be the quantity sold, times the sales price minus the cost of production. Theproduction cost is in Singapore dollars, so we must convert this to U.S. dollars. Doing so, we find that if the exchange rates stay the same, the profit will be:Profit = 30,000[$145 – {(S$168.50)/(S$1.6548/$1)}]Profit = $1,295,250.18If the exchange rate rises, we must adjust the cost by the increased exchange rate, so:Profit = 30,000[$145 – {(S$168.50)/1.1(S$1.6548/$1)}]Profit = $1,572,954.71If the exchange rate falls, we must adjust the cost by the decreased exchange rate, so:Profit = 30,000[$145 – {(S$168.50)/0.9(S$1.6548/$1)}]Profit = $955,833.53To calculate the breakeven change in the exchange rate, we need to find the exchange rate that make the cost in Singapore dollars equal to the selling price in U.S. dollars, so:$145 = S$168.50/S TS T = S$1.1621/$1S T = –.2978 or –29.78% decline10. a.If IRP holds, then:F180 = (Kr 6.43)[1 + (.08 – .05)]1/2F180 = Kr 6.5257Since given F180 is Kr6.56, an arbitrage opportunity exists; the forward premium is too high.Borrow Kr1 today at 8% interest. Agree to a 180-day forward contract at Kr 6.56. Convert the loan proceeds into dollars:Kr 1 ($1/Kr 6.43) = $0.15552Invest these dollars at 5%, ending up with $0.15931. Convert the dollars back into krone as$0.15931(Kr 6.56/$1) = Kr 1.04506Repay the Kr 1 loan, ending with a profit of:Kr1.04506 – Kr1.03868 = Kr 0.00638b.To find the forward rate that eliminates arbitrage, we use the interest rate parity condition, so:F180 = (Kr 6.43)[1 + (.08 – .05)]1/2F180 = Kr 6.525711.The international Fisher effect states that the real interest rate across countries is equal. We canrearrange the international Fisher effect as follows to answer this question:R US– h US = R FC– h FCh FC = R FC + h US– R USa.h AUS = .05 + .035 – .039h AUS = .046 or 4.6%b.h CAN = .07 + .035 – .039h CAN = .066 or 6.6%c.h TAI = .10 + .035 – .039h TAI = .096 or 9.6%12. a.The yen is expected to get stronger, since it will take fewer yen to buy one dollar in the futurethan it does today.b.h US– h JAP (¥129.76 – ¥131.30)/¥131.30h US– h JAP = – .0117 or –1.17%(1 – .0117)4– 1 = –.0461 or –4.61%The approximate inflation differential between the U.S. and Japan is – 4.61% annually.13. We need to find the change in the exchange rate over time, so we need to use the relative purchasingpower parity relationship:F t = S0 × [1 + (h FC– h US)]TUsing this relationship, we find the exchange rate in one year should be:F1 = 215[1 + (.086 – .035)]1F1 = HUF 225.97The exchange rate in two years should be:F2 = 215[1 + (.086 – .035)]2F2 = HUF 237.49And the exchange rate in five years should be:F5 = 215[1 + (.086 – .035)]5F5 = HUF 275.71ing the interest-rate parity theorem:(1 + R US) / (1 + R FC) = F(0,1) / S0We can find the forward rate as:F(0,1) = [(1 + R US) / (1 + R FC)] S0F(0,1) = (1.13 / 1.08)$1.50/£F(0,1) = $1.57/£Intermediate15.First, we need to forecast the future spot rate for each of the next three years. From interest rate andpurchasing power parity, the expected exchange rate is:E(S T) = [(1 + R US) / (1 + R FC)]T S0So:E(S1) = (1.0480 / 1.0410)1 $1.22/€ = $1.2282/€E(S2) = (1.0480 / 1.0410)2 $1.22/€ = $1.2365/€E(S3) = (1.0480 / 1.0410)3 $1.22/€ = $1.2448/€Now we can use these future spot rates to find the dollar cash flows. The dollar cash flow each year will be:Year 0 cash flow = –€$12,000,000($1.22/€) = –$14,640,000.00Year 1 cash flow = €$2,700,000($1.2282/€) = $3,316,149.86Year 2 cash flow = €$3,500,000($1.2365/€) = $4,327,618.63Year 3 cash flow = (€3,300,000 + 7,400,000)($1.2448/€) = $13,319,111.90And the NPV of the project will be:NPV = –$14,640,000 + $3,316,149.86/1.13 + $4,4327,618.63/1.132 + $13,319,111.90/1.133NPV = $914,618.7316. a.Implicitly, it is assumed that interest rates won’t change over the life of the project, but theexchange rate is projected to decline because the Euroswiss rate is lower than the Eurodollar rate.b.We can use relative purchasing power parity to calculate the dollar cash flows at each time. Theequation is:E[S T] = (SFr 1.72)[1 + (.07 – .08)]TE[S T] = 1.72(.99)TSo, the cash flows each year in U.S. dollar terms will be:t SFr E[S T] US$0 –27.0M –$15,697,674.421 +7.5M 1.7028 $4,404,510.222 +7.5M 1.6858 $4,449,000.223 +7.5M 1.6689 $4,493,939.624 +7.5M 1.6522 $4,539,332.955 +7.5M 1.6357 $4,585,184.79And the NPV is:NPV = –$15,697,674.42 + $4,404,510.22/1.13 + $4,449,000.22/1.132 + $4,493,939.62/1.133 + $4,539,332.95/1.134 + $4,585,184.79/1.135NPV = $71,580.10c.Rearranging the relative purchasing power parity equation to find the required return in Swissfrancs, we get:R SFr = 1.13[1 + (.07 – .08)] – 1R SFr = 11.87%So, the NPV in Swiss francs is:NPV = –SFr 27.0M + SFr 7.5M(PVIFA11.87%,5)NPV = SFr 123,117.76Converting the NPV to dollars at the spot rate, we get the NPV in U.S. dollars as:NPV = (SFr 123,117.76)($1/SFr 1.72)NPV = $71,580.10Challenge17. a.The domestic Fisher effect is:1 + R US = (1 + r US)(1 + h US)1 + r US = (1 + R US)/(1 + h US)This relationship must hold for any country, that is:1 + r FC = (1 + R FC)/(1 + h FC)The international Fisher effect states that real rates are equal across countries, so:1 + r US = (1 + R US)/(1 + h US) = (1 + R FC)/(1 + h FC) = 1 + r FCb.The exact form of unbiased interest rate parity is:E[S t] = F t = S0 [(1 + R FC)/(1 + R US)]tc.The exact form for relative PPP is:E[S t] = S0 [(1 + h FC)/(1 + h US)]td.For the home currency approach, we calculate the expected currency spot rate at time t as:E[S t] = (€0.5)[1.07/1.05]t= (€0.5)(1.019)tWe then convert the euro cash flows using this equation at every time, and find the present value. Doing so, we find:NPV = –[€2M/(€0.5)] + {€0.9M/[1.019(€0.5)]}/1.1 + {€0.9M/[1.0192(€0.5)]}/1.12 + {€0.9M/[1.0193(€0.5/$1)]}/1.13NPV = $316,230.72For the foreign currency approach, we first find the return in the euros as:R FC = 1.10(1.07/1.05) – 1 = 0.121Next, we find the NPV in euros as:NPV = –€2M + (€0.9M)/1.121 + (€0.9M)/1.1212+ (€0.9M)/1.1213= €158,115.36And finally, we convert the euros to dollars at the current exchange rate, which is:NPV ($) = €158,115.36 /(€0.5/$1) = $316,230.72。
公司理财(双语)4valuing bonds
PV
16 1.045
16
1.045
2
16
1.045
3
16
1.045
4
216
1.045
5
243.57 Yen
4- 24
Valuing a Bond
Example - USA
In July 2006 you purchase a 3 year US Government bond. The bond has an annual coupon rate of 4%, paid semi-annually. If investors demand a 2.48% return on 6 month investments, what is the price of the bond?
Principles of Corporate Finance
Ninth Edition
Chapter 4
Valuing Bonds
4- 2
Topics Covered
Bonds Using The Present Value Formula to Value Bonds How Bond Prices Vary With Interest Rates The Term Structure and YTM
– The face value is supposed to be paid back to the bondholders as the principal, no matter what the purchasing price of the bond
Coupon：annual interest payment Coupon rate: the stated rate of interest on a bond; or the annual interest payment divided by bond’s face value
《公司理财》斯蒂芬A.罗斯..-机械工业出版社-英文课件
7 Net Present VCaolrupeoraantedFinance
Capital Budgeting Ross • Westerfield • Jaffe
Seventh Edition
Seventh Edition
《公司理财》斯蒂芬A.罗斯..-机械工业出版社-英文
《公司理财》斯蒂芬A.罗斯..-机械工业出版社-英文
Cash Flows—Not Accounting Earnings.
• Consider depreciation expense. • You never write a check made out to “depreciation”. • Much of the work in evaluating a project lies in taking accounting
《公司理财》斯蒂芬A.罗斯..-机械工业出版社-英文
Incremental Cash Flows
• Side effects matter. • Erosion and cannibalism are both bad things. If our new product causes existing customers to demand less of current products, we need to recognize that.
Cost of bowling ball machine: $100,000 (depreciated according to ACRS 5-year life).
• Later chapters will deal with the impact that the amount of debt that a firm has in its capital structure has on firm value.
公司理财(英文版)试题库7
CHAPTER 7Net Present Value and Other Investment Rules Multiple Choice Questions:I. DEFINITIONSNET PRESENT VALUEa 1. The difference between the present value of an investment and its cost is the:a. net present value.b. internal rate of return.c. payback period.d. profitability index.e. discounted payback period.Difficulty level: EasyNET PRESENT VALUE RULEc 2. Which one of the following statements concerning net present value (NPV) is correct?a. An investment should be accepted if, and only if, the NPV is exactlyequal to zero.b. An investment should be accepted only if the NPV is equal to the initialcash flow.c. An investment should be accepted if the NPV is positive and rejected ifit is negative.d. An investment with greater cash inflows than cash outflows, regardlessof when the cash flows occur, will always have a positive NPV andtherefore should always be accepted.e. Any project that has positive cash flows for every time period after theinitial investment should be accepted.Difficulty level: EasyPAYBACKc 3. The length of time required for an investment to generate cash flowssufficient to recover the initial cost of the investment is called the:a. net present value.b. internal rate of return.c. payback period.d. profitability index.e. discounted cash period.Difficulty level: EasyPAYBACK RULEa 4. Which one of the following statements is correct concerning thepayback period?a. An investment is acceptable if its calculated payback period is less thansome pre-specified period of time.b. An investment should be accepted if the payback is positive andrejected if it is negative.c. An investment should be rejected if the payback is positive andaccepted if it is negative.d. An investment is acceptable if its calculated payback period is greaterthan some pre-specified period of time.e. An investment should be accepted any time the payback period is lessthan the discounted payback period, given a positive discount rate.Difficulty level: EasyDISCOUNTED PAYBACKe 5. The length of time required for a project’s discounted cash flows toequal the initial cost of the project is called the:a. net present value.b. internal rate of return.c. payback period.d. discounted profitability index.e. discounted payback period.Difficulty level: EasyDISCOUNTED PAYBACK RULEd 6. The discounted payback rule states that you should accept projects:a. which have a discounted payback period that is greater than some pre-specified period of time.b. if the discounted payback is positive and rejected if it is negative.c. only if the discounted payback period equals some pre-specified periodof time.d. if the discounted payback period is less than some pre-specified periodof time.e. only if the discounted payback period is equal to zero.Difficulty level: EasyAVERAGE ACCOUNTING RETURNc 7. An investment’s average net income divided by its average book valuedefines the average:a. net present value.b. internal rate of return.c. accounting return.d. profitability index.e. payback period.Difficulty level: EasyAVERAGE ACCOUNTING RETURN RULEb 8. An investment is acceptable if its average accounting return (AAR):a. is less than a target AAR.b. exceeds a target AAR.c. exceeds the firm’s return on equity (ROE).d. is less than the firm’s return on assets (ROA).e. is equal to zero and only when it is equal to zero.Difficulty level: EasyINTERNAL RATE OF RETURNb. 9. The discount rate that makes the net present value of an investmentexactly equal tozero is called the:a. external rate of return.b. internal rate of return.c. average accounting return.d. profitability index.e. equalizer.Difficulty level: EasyINTERNAL RATE OF RETURN RULEd 10. An investment is acceptable if its IRR:a. is exactly equal to its net present value (NPV).b. is exactly equal to zero.c. is less than the required return.d. exceeds the required return.e. is exactly equal to 100 percent.Difficulty level: EasyMULTIPLE RATES OF RETURNe 11. The possibility that more than one discount rate will make the NPV ofan investment equal to zero is called the _____ problem.a. net present value profilingb. operational ambiguityc. mutually exclusive investment decisiond. issues of scalee. multiple rates of returnDifficulty level: MediumMUTUALLY EXCLUSIVE PROJECTSc 12. A situation in which accepting one investment prevents the acceptanceof another investment is called the:a. net present value profile.b. operational ambiguity decision.c. mutually exclusive investment decision.d. issues of scale problem.e. multiple choices of operations decision.Difficulty level: EasyPROFITABILITY INDEXd. 13. The present value of an investment’s future cash flows divided by theinitial cost of the investment is called the:a. net present value.b. internal rate of return.c. average accounting return.d. profitability index.e. profile period.Difficulty level: EasyPROFITABILITY INDEX RULEa 14. An investment is acceptable if the profitability index (PI) of theinvestment is:a. greater than one.b. less than one.c. greater than the internal rate of return (IRR).d. less than the net present value (NPV).e. greater than a pre-specified rate of return.Difficulty level: EasyII. CONCEPTSNET PRESENT VALUEd 15. All else constant, the net present value of a project increases when:a. the discount rate increases.b. each cash inflow is delayed by one year.c. the initial cost of a project increases.d. the rate of return decreases.e. all cash inflows occur during the last year of a project’s life instead ofperiodically throughout the life of the project.Difficulty level: EasyNET PRESENT VALUEa 16. The primary reason that company projects with positive net present values areconsidered acceptable is that:a. they create value for the owners of the firm.b. the project’s rate of return exceeds the rate of inflation.c. they return the initial cash outlay within three years or less.d. the required cash inflows exceed the actual cash inflows.e. the investment’s cost exceeds the present value of the cash inflows.Difficulty level: EasyNET PRESENT VALUEd 17. If a project has a net present value equal to zero, then:I. the present value of the cash inflows exceeds the initial cost of the project.II. the project produces a rate of return that just equals the rate required to accept theproject.III. the project is expected to produce only the minimally required cash inflows.IV. any delay in receiving the projected cash inflows will cause the project to have a negative net present value.a. II and III onlyb. II and IV onlyc. I, II, and IV onlyd. II, III, and IV onlye. I, II, and III onlyDifficulty level: MediumNET PRESENT VALUEb 18. Net present value:a. cannot be used when deciding between two mutually exclusive projects.b. is more useful to decision makers than the internal rate of return when comparingdifferent sized projects.c. is easy to explain to non-financial managers and thus is the primary method of analysisused by the lowest levels of management.d. is not an as widely used tool as payback and discounted paybacke. is very similar in its methodology to the average accounting return.Difficulty level: EasyPAYBACKc 19. Payback is frequently used to analyze independent projects because:a. it considers the time value of money.b. all relevant cash flows are included in the analysis.c. it is easy and quick to calculate.d. it is the most desirable of all the available analytical methods from a financialperspective.e. it produces better decisions than those made using either NPV or IRR.Difficulty level: EasyPAYBACKc 20. The advantages of the payback method of project analysis include the:I. application of a discount rate to each separate cash flow.II. bias towards liquidity.III. ease of use.IV. arbitrary cutoff point.a. I and II onlyb. I and III onlyc. II and III onlyd. II and IV onlye. II, III, and IV onlyDifficulty level: MediumPAYBACKd 21. All else equal, the payback period for a project will decrease whenever the:a. initial cost increases.b. required return for a project increases.c. assigned discount rate decreases.d. cash inflows are moved forward in time.e. duration of a project is lengthened.Difficulty level: MediumDISCOUNTED PAYBACKd 22. The discounted payback period of a project will decrease whenever the:a. discount rate applied to the project is increased.b. initial cash outlay of the project is increased.c. time period of the project is increased.d. amount of each project cash flow is increased.e. costs of the fixed assets utilized in the project increase.Difficulty level: MediumDISCOUNTED PAYBACKa 23. The discounted payback rule may cause:a. some positive net present value projects to be rejected.b. the most liquid projects to be rejected in favor of less liquid projects.c. projects to be incorrectly accepted due to ignoring the time value of money.d. projects with negative net present values to be accepted.e. some projects to be accepted which would otherwise be rejected under the paybackrule.Difficulty level: EasyINTERNAL RATE OF RETURNb 24. The internal rate of return (IRR):I. rule states that a project with an IRR that is less than the required rate should beaccepted.II. is the rate generated solely by the cash flows of an investment.III. is the rate that causes the net present value of a project to exactly equal zero.IV. can effectively be used to analyze all investment scenarios.a. I and IV onlyb. II and III onlyc. I, II, and III onlyd. II, III, and IV onlye. I, II, III, and IVDifficulty level: MediumINTERNAL RATE OF RETURNa 25. The internal rate of return for a project will increase if:a. the initial cost of the project can be reduced.b. the total amount of the cash inflows is reduced.c. each cash inflow is moved such that it occurs one year later than originally projected.d. the required rate of return is reduced.e. the salvage value of the project is omitted from the analysis.Difficulty level: MediumINTERNAL RATE OF RETURNc 26. The internal rate of return is:a. more reliable as a decision making tool than net present value whenever you areconsidering mutually exclusive projects.b. equivalent to the discount rate that makes the net present value equal to one.c. difficult to compute without the use of either a financial calculator or a computer.d. dependent upon the interest rates offered in the marketplace.e. a better methodology than net present value when dealing with unconventional cashflows.Difficulty level: MediumINTERNAL RATE OF RETURNa 27. The internal rate of return tends to be:a. easier for managers to comprehend than the net present value.b. extremely accurate even when cash flow estimates are faulty.c. ignored by most financial analysts.d. used primarily to differentiate between mutually exclusive projects.e. utilized in project analysis only when multiple net present values apply.Difficulty level: EasyINCREMENTAL INTERNAL RATE OF RETURNe 28. You are trying to determine whether to accept project A or project B. These projectsare mutually exclusive. As part of your analysis, you should computethe incremented IRR by determining:a. the internal rate of return for the cash flows of each project.b. the net present value of each project using the internal rate of return as the discountrate.c. the discount rate that equates the discounted payback periods for each project.d. the discount rate that makes the net present value of each project equal to 1.e. the internal rate of return for the differences in the cash flows of the two projects.Difficulty level: MediumINCREMENTAL INTERNAL RATE OF RETURNb 29. Graphing the incremental IRR helps explain:a. why one project is always superior to another project.b. how decisions concerning mutually exclusive projects are derived.c. how the duration of a project affects the decision as to which project to accept.d. how the net present value and the initial cash outflow of a project are related.e. how the profitability index and the net present value are related.Difficulty level: MediumPROFITABILITY INDEXd 30. The profitability index is closely related to:a. payback.b. discounted payback.c. the average accounting return.d. net present value.e. mutually exclusive projects.Difficulty level: EasyPROFITABILITY INDEXb 31. Analysis using the profitability index:a. frequently conflicts with the accept and reject decisions generated bythe application ofthe net present value rule.b. is useful as a decision tool when investment funds are limited.c. is useful when trying to determine which one of two mutually exclusive projectsshould be accepted.d. utilizes the same basic variables as those used in the average accounting return.e. produces results which typically are difficult to comprehend or apply.Difficulty level: MediumPROFITABILITY INDEXe 32. If you want to review a project from a benefit-cost perspective, you should use the_____ method of analysis.a. net present valueb. paybackc. internal rate of returnd. average accounting returne. profitability indexDifficulty level: EasyPROFITABILITY INDEXb 33. When the present value of the cash inflows exceeds the initial cost of a project, thenthe project should be:a. accepted because the internal rate of return is positive.b. accepted because the profitability index is greater than 1.c. accepted because the profitability index is negative.d. rejected because the internal rate of return is negative.e. rejected because the net present value is negative.Difficulty level: EasyMUTUALLY EXCLUSIVE PROJECTSc 34. Which one of the following is the best example of two mutually exclusive projects?a. planning to build a warehouse and a retail outlet side by sideb. buying sufficient equipment to manufacture both desks and chairs simultaneouslyc. using an empty warehouse for storage or renting it entirely out to another firmd. using the company sales force to promote sales of both shoes and sockse. buying both inventory and fixed assets using funds from the same bond issueDifficulty level: MediumMUTUALLY EXCLUSIVE PROJECTSd 35. The Liberty Co. is considering two projects. Project A consists of building a wholesalebook outlet on lot #169 of the Englewood Retail Center. Project B consists of buildinga sit-down restaurant on lot #169 of the Englewood Retail Center. When trying todecide whether or build the book outlet or the restaurant, management should relymost heavily on the analysis results from the _____ method of analysis.a. profitability indexb. internal rate of returnc. paybackd. net present valuee. accounting rate of returnDifficulty level: MediumMUTUALLY EXCLUSIVE PROJECTSc 36. When two projects both require the total use of the same limited economic resource,the projects are generally considered to be:a. independent.b. marginally profitable.c. mutually exclusive.d. acceptable.e. internally profitable.Difficulty level: EasyMUTUALLY EXCLUSIVE PROJECTSc 37. Matt is analyzing two mutually exclusive projects of similar size and has prepared thefollowing data. Both projects have 5 year lives.Project A Project B Net present value $15,090$14,693Payback period 2.76 years 2.51 yearsAverage accounting return 9.3 percent 9.6 percent Required return 8.3 percent8.0 percentRequired AAR 9.0 percent 9.0 percentMatt has been asked for his best recommendation given thisinformation. His recommendation should be to accept:a. project B because it has the shortest payback period.b. both projects as they both have positive net present values.c. project A and reject project B based on their net present values.d. project B and reject project A based on their average accounting returns.e. project B and reject project A based on both the payback period andthe averageaccounting return.Difficulty level: MediumINVESTMENT ANALYSISa 38. Given that the net present value (NPV) is generally considered to be the best methodof analysis, why should you still use the other methods?a. The other methods help validate whether or not the results from the net present value analysis are reliable.b. You need to use the other methods since conventional practice dictates that you onlyaccept projects after you have generated three accept indicators.c. You need to use other methods because the net present value method is unreliable when a project has unconventional cash flows.d. The average accounting return must always indicate acceptance since this is the bestmethod from a financial perspective.e. The discounted payback method must always be computed to determine if a projectreturns a positive cash flow since NPV does not measure this aspect of a project.Difficulty level: MediumINVESTMENT ANALYSISe 39. In actual practice, managers frequently use the:I. AAR because the information is so readily available.II. IRR because the results are easy to communicate and understand.III. payback because of its simplicity.IV. net present value because it is considered by many to be the best method of analysis.a. I and III onlyb. II and III onlyc. I, III, and IV onlyd. II, III, and IV onlye. I, II, III, and IVDifficulty level: MediumINVESTMENT ANALYSISa 40. No matter how many forms of investment analysis you do:a. the actual results from a project may vary significantly from the expected results.b. the internal rate of return will always produce the most reliable results.c. a project will never be accepted unless the payback period is met.d. the initial costs will generally vary considerably from the estimated costs.e. only the first three years of a project ever affect its final outcome.Difficulty level: EasyINVESTMENT ANALYSISb 41. Which of the following methods of project analysis are biased towards short-termprojects?I. internal rate of returnII. accounting rate of returnIII. paybackIV. discounted paybacka. I and II onlyb. III and IV onlyc. II and III onlyd. I and IV onlye. II and IV onlyDifficulty level: MediumINVESTMENT ANALYSISa 42. If a project is assigned a required rate of return equal to zero, then:a. the timing of the project’s cash flows has no bearing on the value of the project.b. the project will always be accepted.c. the project will always be rejected.d. whether the project is accepted or rejected will depend on the timing of the cash flows.e. the project can never add value for the shareholders.Difficulty level: MediumDECISION RULESe 43. You are considering a project with the following data:Internal rate of return 8.7 percentProfitability ratio .98Net present value -$393Payback period 2.44 yearsRequired return 9.5 percentWhich one of the following is correct given this information?a. The discount rate used in computing the net present value must have been less than 8.7percent.b. The discounted payback period will have to be less than 2.44 years.c. The discount rate used to compute the profitability ratio was equal to the internal rate of return.d. This project should be accepted based on the profitability ratio.e. This project should be rejected based on the internal rate of return.Difficulty level: MediumNET PRESENT VALUEc 44. A ccepting positive NPV projects benefits the stockholders because:a. it is the most easily understood valuation process.b. the present value of the expected cash flows are equal to the cost.c. the present value of the expected cash flows are greater than the cost.d. it is the most easily calculated.e. None of the above.Difficulty level: EasyNET PRESENT VALUEa 45. W hich of the following does not characterize NPV?a. NPV does not incorporate risk into the analysis.b. NPV incorporates all relevant information.c. NPV uses all of the project's cash flows.d. NPV discounts all future cash flows.e. Using NPV will lead to decisions that maximize shareholder wealth.Difficulty level: EasyPAYBACKe 46. T he payback period rule:a. discounts cash flows.b. ignores initial cost.c. always uses all possible cash flows in its calculation.d. Both A and C.e. None of the above.Difficulty level: EasyPAYBACKc 47. T he payback period rule accepts all investment projects in which thepayback period for the cash flows is:a. equal to the cutoff point.b. greater than the cutoff point.c. less than the cutoff point.d. positive.e. None of the above.Difficulty level: EasyPAYBACKd 48. T he payback period rule is a convenient and useful tool because:a. it provides a quick estimate of how rapidly the initial investment will berecouped.b. results of a short payback rule decision will be quickly seen.c. it does not take into account time value of money.d. All of the above.e. None of the above.Difficulty level: EasyDISCOUNTED PAYBACKa 49. T he discounted payback period rule:a. considers the time value of money.b. discounts the cutoff point.c. ignores uncertain cash flows.d. is preferred to the NPV rule.e. None of the above.Difficulty level: EasyPAYBACKc 50. T he payback period rule:a. determines a cutoff point so that all projects accepted by the NPV rulewill be accepted by the payback period rule.b. determines a cutoff point so that depreciation is just equal to positivecash flows in the payback year.c. requires an arbitrary choice of a cutoff point.d. varies the cutoff point with the interest rate.e. Both A and D.Difficulty level: EasyAVERAGE ACCOUNTING RETURNc 51. T he average accounting return is determined by:a. dividing the yearly cash flows by the investment.b. dividing the average cash flows by the investment.c. dividing the average net income by the average investment.d. dividing the average net income by the initial investment.e. dividing the net income by the cash flow.Difficulty level: EasyAVERAGE ACCOUNTING RETURNb 52. T he investment decision rule that relates average net income to averageinvestment is the:a. discounted cash flow method.b. average accounting return method.c. average payback method.d. average profitability index.e. None of the above.Difficulty level: EasyMODIFIED INTERNAL RATE OF RETURNd 53. M odified internal rate of return:a. handles the multiple IRR problem by combining cash flows until onlyone change in sign change remains.b. requires the use of a discount rate.c. does not require the use of a discount rate.d. Both A and B.e. Both A and C.Difficulty level: MediumAVERAGE ACCOUNTING RETURNd 54. T he shortcoming(s) of the average accounting return (AAR) method is(are):a. the use of net income instead of cash flows.b. the pattern of income flows has no impact on the AAR.c. there is no clear-cut decision rule.d. All of the above.e. None of the above.Difficulty level: MediumINTERNAL RATE OF RETURNe 55. T he two fatal flaws of the internal rate of return rule are:a. arbitrary determination of a discount rate and failure to consider initialexpenditures.b. arbitrary determination of a discount rate and failure to correctlyanalyze mutually exclusive investment projects.c. arbitrary determination of a discount rate and the multiple rate ofreturn problem.d. failure to consider initial expenditures and failure to correctly analyzemutually exclusive investment projects.e. failure to correctly analyze mutually exclusive investment projects andthe multiple rate of return problem.Difficulty level: MediumMUTUALLY EXCLUSIVE PROJECTSd 56. A mutually exclusive project is a project whose:a. acceptance or rejection has no effect on other projects.b. NPV is always negative.c. IRR is always negative.d. acceptance or rejection affects other projects.e. cash flow pattern exhibits more than one sign change.Difficulty level: EasyINTERNAL RATE OF RETURNd 57. A project will have more than one IRR if:a. the IRR is positive.b. the IRR is negative.c. the NPV is zero.d. the cash flow pattern exhibits more than one sign change.e. the cash flow pattern exhibits exactly one sign change.Difficulty level: EasyINTERNAL RATE OF RETURN RULESb 58. U sing internal rate of return, a conventional project should be acceptedif the internal rate of return is:a. equal to the discount rate.b. greater than the discount rate.c. less than the discount rate.d. negative.e. positive.Difficulty level: EasyINTERNAL RATE OF RETURNa 59. The internal rate of return may be defined as:a. the discount rate that makes the NPV cash flows equal to zero.b. the difference between the market rate of interest and the NPV.c. the market rate of interest less the risk-free rate.d. the project acceptance rate set by management.e. None of the above.Difficulty level: MediumMULTIPLE INTERNAL RATE OF RETURNSd 60. The problem of multiple IRRs can occur when:a. there is only one sign change in the cash flows.b. the first cash flow is always positive.c. the cash flows decline over the life of the project.d. there is more than one sign change in the cash flows.e. None of the above.Difficulty level: EasyTIMING AND SCALE ISSUES WITH INTERNAL RATE OF RETURNb 61. T he elements that cause problems with the use of the IRR in projectsthat are mutually exclusive are:a. the discount rate and scale problems.b. timing and scale problems.c. the discount rate and timing problems.d. scale and reversing flow problems.e. timing and reversing flow problems.Difficulty level: MediumNET PRESENT VALUE DECISIONc 62. If there is a conflict between mutually exclusive projects due to the IRR,one should:a. drop the two projects immediately.b. spend more money on gathering information.c. depend on the NPV as it will always provide the most value.d. depend on the AAR because it does not suffer from these sameproblems.e. None of the above.Difficulty level: MediumPROFITABILITY INDEXe 63. The profitability index is the ratio of:a. average net income to average investment.b. internal rate of return to current market interest rate.c. net present value of cash flows to internal rate of return.d. net present value of cash flows to average accounting return.e. present value of cash flows to initial investment cost.Difficulty level: EasyINVESTMENT DECISION RULESa 64. Which of the following statement is true?a. One must know the discount rate to compute the NPV of a project butone can compute the IRR without referring to the discount rate.b. One must know the discount rate to compute the IRR of a project butone can compute the NPV without referring to the discount rate.c. Payback accounts for time value of money.d. There will always be one IRR regardless of cash flows.e. Average accounting return is the ratio of total assets to total net income.Difficulty level: MediumCAPITAL BUDGETING PRACTICEb 65. Graham and Harvey (2001) found that ___ and ___ were the two mostpopular capital budgeting methods.a. Internal Rate of Return; Payback Periodb. Internal Rate of Return; Net Present Valuec. Net Present Value; Payback Periodd. Modified Internal Rate of Return; Internal Rate of Returne. Modified Internal Rate of Return; Net Present Value。
公司理财(罗斯)第1章(英文
03 Valuation Basis
The concept and significance of valuation
要点一
Definition
Valuation is the process of estimating the worth of an asset or a company, typically through the use of financial metrics and analysis.
The Time Value of Money
公司理财英文版
公司理财英文版Company Financial ManagementIntroductionFinancial management is a critical aspect of running a successful business. It involves planning, organizing, controlling, and monitoring the company's financial resources to achieve its objectives. Effective financial management ensures that the company has sufficient funds, optimal utilization of resources, and profitability. This article provides an overview of the key components of company financial management, including financial planning, budgeting, forecasting, cash flow management, and risk management.Financial PlanningFinancial planning is the foundation of effective financial management. It involves assessing the company's current financial position, setting financial objectives, and developing strategies to achieve those objectives. The financial planning process includes analyzing the company's revenue and expenses, cash flow, assets and liabilities, and financial ratios. This analysis helps identify areas of improvement and opportunities for growth.One of the key aspects of financial planning is setting realistic and achievable financial goals. These goals can be short-term or long-term and should align with the company's overall business objectives. Financial goals may include increasing revenue, reducing expenses, improving profitability, or expanding into newmarkets. Setting specific, measurable, attainable, relevant, and time-bound (SMART) goals enhances the effectiveness of financial planning.BudgetingBudgeting is an integral part of financial management as it helps allocate financial resources effectively. A budget is a comprehensive plan that outlines the company's expected revenue and expenses for a specific period, typically a year. It serves as a roadmap for financial decision-making and helps control spending, ensure profitability, and allocate resources efficiently.The budgeting process involves gathering relevant financial data, estimating revenue and expenses, and projecting cash flows. The budget should be realistic, achievable, and aligned with the company's financial goals. It should also be flexible enough to adapt to changing circumstances and market conditions. Regular monitoring and review of the budget help identify variances and take corrective actions if necessary.ForecastingForecasting is an essential component of financial management as it helps anticipate future financial trends and outcomes. It involves analyzing historical data, market trends, and economic indicators to predict the company's financial performance. Forecasting enables companies to make informed decisions, identify potential risks and opportunities, and develop strategies to mitigate risks and exploit opportunities.Cash Flow ManagementCash flow management is crucial for the financial stability and success of a company. It involves monitoring and controlling the company's cash inflows and outflows to ensure sufficient liquidity and meet financial obligations. Effective cash flow management minimizes the risk of cash shortages, improves financial flexibility, and enhances the company's ability to invest in growth opportunities.To manage cash flow effectively, companies need to accurately forecast cash inflows from sales, investments, and financing activities. They also need to monitor and control cash outflows, including payments to suppliers, employee salaries, and loan repayments. Efficient working capital management, such as optimizing inventory levels and extending payment terms with suppliers, can help improve cash flow.Risk ManagementRisk management is an integral part of company financial management. It involves identifying, assessing, and mitigating financial risks that may impact the company's financial stability and performance. Some common financial risks include market risks, credit risks, liquidity risks, and operational risks.To manage financial risks effectively, companies need to develop robust risk management strategies and processes. This includes diversifying investments, hedging against currency or interest ratefluctuations, implementing internal controls and governance structures, and having effective insurance coverage. Regular monitoring and review of risk management strategies help ensure their effectiveness and relevance in the changing business environment.ConclusionEffective financial management is crucial for the success of any company. It involves planning, budgeting, forecasting, cash flow management, and risk management. Financial planning helps set realistic and achievable financial goals, while budgeting allocates financial resources effectively. Forecasting helps anticipate future financial trends and outcomes, and cash flow management ensures sufficient liquidity. Lastly, risk management mitigates financial risks that may impact the company's financial stability and performance. By implementing sound financial management practices, companies can improve profitability, maximize shareholder value, and achieve long-term sustainability.。
公司理财(双语)3present value
3- 8
Present Values
PVs can be added together to evaluate multiple cash flows.
PV
C1 (1 r )
1
(1r ) 2 ....
C2
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Present Values
PVs can be added together to evaluate multiple cash flows.
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Present Values
Example
What is the present value of $1 billion every year, for all eternity, if you estimate the perpetual discount rate to $1 bil PV be 10%?? 0.10 $10 billion
1 1 Lease Cost 300 48 .005 .0051 .005 Cost $12,774.10
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Annuity Short Cut
Example The state lottery advertises a jackpot prize of $295.7 million, paid in 25 installments over 25 years of $11.828 million per year, at the end of each year. If interest rates are 5.9% what is the true value of the lottery prize?
1 1 PV of annuity C t r r 1 r
Net Present Value and Alternative Investment Rules 1
NPV
An investment is worth undertaking if it creates value for its owners.
如果一项投资能够为我们创造价值， 那么这 项投资就是值得进行的。
• In the most general sense, we create value by identifying an investment worth more in the marketplace than it costs us to acquire.
根据预计的销售额和成本，我们预期未来五年 的现金流量为
NPV Example
$2,000 in the first two years 前两年每年两千美 元 $4,000 in the next two 中间两年每年四千美元 $5,000 in the last year 最后一年五千美元
We use a 10% discount rate to evaluate new products. What should we do here?
贴现率是10%。
NPV Example
Given the cash flows and discount rate, we can calculate the total value of the product by discounting the cash flows back to the present:
NPV
Given financial managers’ goal is creating value for the stockholders, the investment appraisal process can be viewed as a search for investments with positive net present values.
公司理财双语3present value.ppt
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Present Values
Example
Tiburon Autos offers you “easy payments” of $5,000 per year, at the end of each year for 5 years. If interest rates are 7%, per year, what is the cost of the car?
Leas
e
Cost
300
1 .005
.0051
1
.00548
Cost $12,774.10
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Annuity Short Cut
Example
The state lottery advertises a jackpot prize of $295.7 million, paid in 25 installments over 25 years of $11.828 million per year, at the end of each year. If interest rates are 5.9% what is the true value of the lottery prize?
3- 8
Present Values
PVs can be added together to evaluate multiple cash flows.
PV
C1 (1r )1
C2 (1r )2
....
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Present Values
PVs can be added together to evaluate multiple cash flows.
公司理财罗斯第九版课后习题答案
罗斯《公司理财》第9版精要版英文原书课后部分章节答案详细»1 / 17 CH5 11，13，18，19，20 11. To find the PV of a lump sum, we use: PV = FV / (1 + r) t PV = $1,000,000 / (1.10) 80 = $488.19 13. To answer this question, we can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is: FV = PV(1 + r) t Solving for r, we get: r = (FV / PV) 1 / t –1 r = ($1,260,000 / $150) 1/112 – 1 = .0840 or 8.40% To find the FV of the first prize, we use: FV = PV(1 + r) t FV = $1,260,000(1.0840) 33 = $18,056,409.94 18. To find the FV of a lump sum, we use: FV = PV(1 + r) t FV = $4,000(1.11) 45 = $438,120.97 FV = $4,000(1.11) 35 = $154,299.40 Better start early! 19. We need to find the FV of a lump sum. However, the money will only be invested for six years, so the number of periods is six. FV = PV(1 + r) t FV = $20,000(1.084)6 = $32,449.33 20. To answer this question, we can use either the FV or the PV formula. Both will give the same answer since they are the inverse of each other. We will use the FV formula, that is: FV = PV(1 + r) t Solving for t, we get: t = ln(FV / PV) / ln(1 + r) t = ln($75,000 / $10,000) / ln(1.11) = 19.31 So, the money must be invested for 19.31 years. However, you will not receive the money for another two years. From now, you’ll wait: 2 years + 19.31 years = 21.31 years CH6 16，24，27，42，58 16. For this problem, we simply need to find the FV of a lump sum using the equation: FV = PV(1 + r) t 2 / 17 It is important to note that compounding occurs semiannually. To account for this, we will divide the interest rate by two (the number of compounding periods in a year), and multiply the number of periods by two. Doing so, we get: FV = $2,100[1 + (.084/2)] 34 = $8,505.93 24. This problem requires us to find the FVA. The equation to find the FVA is: FV A = C{[(1 + r) t – 1] / r} FV A = $300[{[1 + (.10/12) ] 360 – 1} / (.10/12)] = $678,146.38 27. The cash flows are annual and the compounding period is quarterly, so we need to calculate the EAR to make the interest rate comparable with the timing of the cash flows. Using the equation for the EAR, we get: EAR = [1 + (APR / m)] m – 1 EAR = [1 + (.11/4)] 4 – 1 = .1146 or 11.46% And now we use the EAR to find the PV of each cash flow as a lump sum and add them together: PV = $725 / 1.1146 + $980 / 1.1146 2 + $1,360 / 1.1146 4 = $2,320.36 42. The amount of principal paid on the loan is the PV of the monthly payments you make. So, the present value of the $1,150 monthly payments is: PVA = $1,150[(1 – {1 / [1 + (.0635/12)]} 360 ) / (.0635/12)] = $184,817.42 The monthly payments of $1,150 will amount to a principal payment of $184,817.42. The amount of principal you will still owe is: $240,000 – 184,817.42 = $55,182.58 This remaining principal amount will increase at the interest rate on the loan until the end of the loan period. So the balloon payment in 30 years, which is the FV of the remaining principal will be: Balloon payment = $55,182.58[1 + (.0635/12)] 360 = $368,936.54 58. To answer this question, we should find the PV of both options, and compare them. Since we are purchasing the car, the lowest PV is the best option. The PV of the leasing is simply the PV of the lease payments, plus the $99. The interest rate we would use for the leasing option is the same as the interest rate of the loan. The PV of leasing is: PV = $99 + $450{1 –[1 / (1 + .07/12) 12(3) ]} / (.07/12) = $14,672.91 The PV of purchasing the car is the current price of the car minus the PV of the resale price. The PV of the resale price is: PV = $23,000 / [1 + (.07/12)] 12(3) = $18,654.82 The PV of the decision to purchase is: $32,000 – 18,654.82 = $13,345.18 3 / 17 In this case, it is cheaper to buy the car than leasing it since the PV of the purchase cash flows is lower. To find the breakeven resale price, we need to find the resale price that makes the PV of the two options the same. In other words, the PV of the decision to buy should be: $32,000 – PV of resale price = $14,672.91 PV of resale price = $17,327.09 The resale price that would make the PV of the lease versus buy decision is the FV ofthis value, so: Breakeven resale price = $17,327.09[1 + (.07/12)] 12(3) = $21,363.01 CH7 3，18，21，22，31 3. The price of any bond is the PV of the interest payment, plus the PV of the par value. Notice this problem assumes an annual coupon. The price of the bond will be: P = $75({1 – [1/(1 + .0875)] 10 } / .0875) + $1,000[1 / (1 + .0875) 10 ] = $918.89 We would like to introduce shorthand notation here. Rather than write (or type, as the case may be) the entire equation for the PV of a lump sum, or the PV A equation, it is common to abbreviate the equations as: PVIF R,t = 1 / (1 + r) t which stands for Present Value Interest Factor PVIFA R,t = ({1 – [1/(1 + r)] t } / r ) which stands for Present Value Interest Factor of an Annuity These abbreviations are short hand notation for the equations in which the interest rate and the number of periods are substituted into the equation and solved. We will use this shorthand notation in remainder of the solutions key. 18. The bond price equation for this bond is: P 0 = $1,068 = $46(PVIFA R%,18 ) + $1,000(PVIF R%,18 ) Using a spreadsheet, financial calculator, or trial and error we find: R = 4.06% This is the semiannual interest rate, so the YTM is: YTM = 2 4.06% = 8.12% The current yield is: Current yield = Annual coupon payment / Price = $92 / $1,068 = .0861 or 8.61% The effective annual yield is the same as the EAR, so using the EAR equation from the previous chapter: Effective annual yield = (1 + 0.0406) 2 – 1 = .0829 or 8.29% 20. Accrued interest is the coupon payment for the period times the fraction of the period that has passed since the last coupon payment. Since we have a semiannual coupon bond, the coupon payment per six months is one-half of the annual coupon payment. There are four months until the next coupon payment, so two months have passed since the last coupon payment. The accrued interest for the bond is: Accrued interest = $74/2 × 2/6 = $12.33 And we calculate the clean price as: 4 / 17 Clean price = Dirty price –Accrued interest = $968 –12.33 = $955.67 21. Accrued interest is the coupon payment for the period times the fraction of the period that has passed since the last coupon payment. Since we have a semiannual coupon bond, the coupon payment per six months is one-half of the annual coupon payment. There are two months until the next coupon payment, so four months have passed since the last coupon payment. The accrued interest for the bond is: Accrued interest = $68/2 × 4/6 = $22.67 And we calculate the dirty price as: Dirty price = Clean price + Accrued interest = $1,073 + 22.67 = $1,095.67 22. To find the number of years to maturity for the bond, we need to find the price of the bond. Since we already have the coupon rate, we can use the bond price equation, and solve for the number of years to maturity. We are given the current yield of the bond, so we can calculate the price as: Current yield = .0755 = $80/P 0 P 0 = $80/.0755 = $1,059.60 Now that we have the price of the bond, the bond price equation is: P = $1,059.60 = $80[(1 – (1/1.072) t ) / .072 ] + $1,000/1.072 t We can solve this equation for t as follows: $1,059.60(1.072) t = $1,111.11(1.072) t –1,111.11 + 1,000 111.11 = 51.51(1.072) t 2.1570 = 1.072 t t = log 2.1570 / log 1.072 = 11.06 11 years The bond has 11 years to maturity.31. The price of any bond (or financial instrument) is the PV of the future cash flows. Even though Bond M makes different coupons payments, to find the price of the bond, we just find the PV of the cash flows. The PV of the cash flows for Bond M is: P M = $1,100(PVIFA 3.5%,16 )(PVIF 3.5%,12 ) + $1,400(PVIFA 3.5%,12 )(PVIF 3.5%,28 ) + $20,000(PVIF 3.5%,40 ) P M = $19,018.78 Notice that for the coupon payments of $1,400, we found the PV A for the coupon payments, and then discounted the lump sum back to today. Bond N is a zero coupon bond with a $20,000 par value, therefore, the price of the bond is the PV of the par, or: P N = $20,000(PVIF 3.5%,40 ) = $5,051.45 CH8 4，18，20，22，24 4. Using the constant growth model, we find the price of the stock today is: P 0 = D 1 / (R – g) = $3.04 / (.11 – .038) = $42.22 5 / 17 18. The priceof a share of preferred stock is the dividend payment divided by the required return. We know the dividend payment in Year 20, so we can find the price of the stock in Year 19, one year before the first dividend payment. Doing so, we get: P 19 = $20.00 / .064 P 19 = $312.50 The price of the stock today is the PV of the stock price in the future, so the price today will be: P 0 = $312.50 / (1.064) 19 P 0 = $96.15 20. We can use the two-stage dividend growth model for this problem, which is: P 0 = [D 0 (1 + g 1 )/(R – g 1 )]{1 – [(1 + g 1 )/(1 + R)] T }+ [(1 + g 1 )/(1 + R)] T [D 0 (1 + g 2 )/(R –g 2 )] P 0 = [$1.25(1.28)/(.13 – .28)][1 –(1.28/1.13) 8 ] + [(1.28)/(1.13)] 8 [$1.25(1.06)/(.13 – .06)] P 0 = $69.55 22. We are asked to find the dividend yield and capital gains yield for each of the stocks. All of the stocks have a 15 percent required return, which is the sum of the dividend yield and the capital gains yield. To find the components of the total return, we need to find the stock price for each stock. Using this stock price and the dividend, we can calculate the dividend yield. The capital gains yield for the stock will be the total return (required return) minus the dividend yield. W: P 0 = D 0 (1 + g) / (R – g) = $4.50(1.10)/(.19 – .10) = $55.00 Dividend yield = D 1 /P 0 = $4.50(1.10)/$55.00 = .09 or 9% Capital gains yield = .19 – .09 = .10 or 10% X: P 0 = D 0 (1 + g) / (R – g) = $4.50/(.19 – 0) = $23.68 Dividend yield = D 1 /P 0 = $4.50/$23.68 = .19 or 19% Capital gains yield = .19 – .19 = 0% Y: P 0 = D 0 (1 + g) / (R – g) = $4.50(1 – .05)/(.19 + .05) = $17.81 Dividend yield = D 1 /P 0 = $4.50(0.95)/$17.81 = .24 or 24% Capital gains yield = .19 – .24 = –.05 or –5% Z: P 2 = D 2 (1 + g) / (R – g) = D 0 (1 + g 1 ) 2 (1 +g 2 )/(R – g 2 ) = $4.50(1.20) 2 (1.12)/(.19 – .12) = $103.68 P 0 = $4.50 (1.20) / (1.19) + $4.50(1.20) 2 / (1.19) 2 + $103.68 / (1.19) 2 = $82.33 Dividend yield = D 1 /P 0 = $4.50(1.20)/$82.33 = .066 or 6.6% Capital gains yield = .19 – .066 = .124 or 12.4% In all cases, the required return is 19%, but the return is distributed differently between current income and capital gains. High growth stocks have an appreciable capital gains component but a relatively small current income yield; conversely, mature, negative-growth stocks provide a high current income but also price depreciation over time. 24. Here we have a stock with supernormal growth, but the dividend growth changes every year for the first four years. We can find the price of the stock in Year 3 since the dividend growth rate is constant after the third dividend. The price of the stock in Year 3 will be the dividend in Year 4, divided by the required return minus the constant dividend growth rate. So, the price in Year 3 will be: 6 / 17 P 3 = $2.45(1.20)(1.15)(1.10)(1.05) / (.11 – .05) = $65.08 The price of the stock today will be the PV of the first three dividends, plus the PV of the stock price in Year 3, so: P 0 = $2.45(1.20)/(1.11) + $2.45(1.20)(1.15)/1.11 2 + $2.45(1.20)(1.15)(1.10)/1.11 3 + $65.08/1.11 3 P 0 = $55.70 CH9 3，4，6，9，15 3. Project A has cash flows of $19,000 in Year 1, so the cash flows are short by $21,000 of recapturing the initial investment, so the payback for Project A is: Payback = 1 + ($21,000 / $25,000) = 1.84 years Project B has cash flows of: Cash flows = $14,000 + 17,000 + 24,000 = $55,000 during this first three years. The cash flows are still short by $5,000 of recapturing the initial investment, so the payback for Project B is: B: Payback = 3 + ($5,000 / $270,000) = 3.019 years Using the payback criterion and a cutoff of 3 years, accept project A and reject project B. 4. When we use discounted payback, we need to find the value of all cash flows today. The value today of the project cash flows for the first four years is: Value today of Year 1 cash flow = $4,200/1.14 = $3,684.21 Value today of Year 2 cash flow = $5,300/1.14 2 = $4,078.18 Value today of Year 3 cash flow = $6,100/1.14 3 = $4,117.33 V alue today of Year 4 cash flow = $7,400/1.14 4 = $4,381.39 To find the discounted payback, we use these values to find the payback period. The discounted first year cash flow is $3,684.21, so the discounted payback for a $7,000 initial cost is: Discounted payback= 1 + ($7,000 – 3,684.21)/$4,078.18 = 1.81 years For an initial cost of $10,000, the discounted payback is: Discounted payback = 2 + ($10,000 –3,684.21 – 4,078.18)/$4,117.33 = 2.54 years Notice the calculation of discounted payback. We know the payback period is between two and three years, so we subtract the discounted values of the Year 1 and Year 2 cash flows from the initial cost. This is the numerator, which is the discounted amount we still need to make to recover our initial investment. We divide this amount by the discounted amount we will earn in Year 3 to get the fractional portion of the discounted payback. If the initial cost is $13,000, the discounted payback is: Discounted payback = 3 + ($13,000 – 3,684.21 – 4,078.18 – 4,117.33) / $4,381.39 = 3.26 years 7 / 17 6. Our definition of AAR is the average net income divided by the average book value. The average net income for this project is: Average net income = ($1,938,200 + 2,201,600 + 1,876,000 + 1,329,500) / 4 = $1,836,325 And the average book value is: Average book value = ($15,000,000 + 0) / 2 = $7,500,000 So, the AAR for this project is: AAR = Average net income / Average book value = $1,836,325 / $7,500,000 = .2448 or 24.48% 9. The NPV of a project is the PV of the outflows minus the PV of the inflows. Since the cash inflows are an annuity, the equation for the NPV of this project at an 8 percent required return is: NPV = –$138,000 + $28,500(PVIFA 8%, 9 ) = $40,036.31 At an 8 percent required return, the NPV is positive, so we would accept the project. The equation for the NPV of the project at a 20 percent required return is: NPV = –$138,000 + $28,500(PVIFA 20%, 9 ) = –$23,117.45 At a 20 percent required return, the NPV is negative, so we would reject the project. We would be indifferent to the project if the required return was equal to the IRR of the project, since at that required return the NPV is zero. The IRR of the project is: 0 = –$138,000 + $28,500(PVIFA IRR, 9 ) IRR = 14.59% 15. The profitability index is defined as the PV of the cash inflows divided by the PV of the cash outflows. The equation for the profitability index at a required return of 10 percent is: PI = [$7,300/1.1 + $6,900/1.1 2 + $5,700/1.1 3 ] / $14,000 = 1.187 The equation for the profitability index at a required return of 15 percent is: PI = [$7,300/1.15 + $6,900/1.15 2 + $5,700/1.15 3 ] / $14,000 = 1.094 The equation for the profitability index at a required return of 22 percent is: PI = [$7,300/1.22 + $6,900/1.22 2 + $5,700/1.22 3 ] / $14,000 = 0.983 8 / 17 We would accept the project if the required return were 10 percent or 15 percent since the PI is greater than one. We would reject the project if the required return were 22 percent since the PI。
公司理财(双语)npv
M © 2003 by The McGraw-Hill Companies, Inc. All rights reserved
5-15 Computing Discounted Payback for
McGraw Hill/Irwin
9-4 Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved
5- 5
Net Present Value
The difference between the market value of a project and its cost.
Project
A B C
C0
C1 C2
- 2000 500 500
- 2000 500 1800
- 2000 1800 500
C3
5000 0 0
Payback Period
3 2 2
NPV@ 10%
2,624 - 58 50
McGraw Hill/Irwin
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved
Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved
5- 7
NPV – Decision Rule
If the NPV is positive, accept the project
A positive NPV means that the project is expected to add value to the firm and will therefore increase the wealth of the owners.
乔纳森 伯克 公司理财 (3)
3-11
Textbook Example 3.1 (cont'd)
3-12
Alternative Example 3.1
• Problem
– Your car recently broke down and it needs $2,000 in repairs. But today is your lucky day because you have just won a contest where the prize is either a new motorcycle, with a MSRP of $15,000, or $10,000 in cash. You do not have a motorcycle license, nor do you plan on getting one. You estimate you could sell the motorcycle for $12,000. Which prize should you choose?
3-4
3.1 Valuing Decisions
• Identify Costs and Benefits
– May need help from other areas in identifying the relevant costs and benefits
• Marketing • Economics • Organizational Behavior • Strategy • Operቤተ መጻሕፍቲ ባይዱtions
公司理财(英文版)题库
.CHAPTER 7Net Present Value and Other Investment Rules Multiple Choice Questions:I. DEFINITIONSNET PRESENT VALUEa 1. The difference between the present value of an investment and its cost is the:a. net present value.b. internal rate of return.c. payback period.d. profitability index.e. discounted payback period.Difficulty level: EasyNET PRESENT VALUE RULEc 2. Which one of the following statements concerning net present value (NPV) is correct?a. An investment should be accepted if, and only if, the NPV is exactly equal to zero.b. An investment should be accepted only if the NPV is equal to the initial cash flow.c. An investment should be accepted if the NPV is positive and rejected if it is negative.d. An investment with greater cash inflows than cash outflows, regardless of when thecash flows occur, will always have a positive NPV and therefore should always beaccepted.e. Any project that has positive cash flows for every time period after the initialinvestment should be accepted.Difficulty level: EasyPAYBACKc 3. The length of time required for an investment to generate cash flows sufficient torecover the initial cost of the investment is called the:a. net present value.b. internal rate of return.c. payback period.d. profitability index.e. discounted cash period.Difficulty level: EasyPAYBACK RULEa 4. Which one of the following statements is correct concerning the payback period?a. An investment is acceptable if its calculated payback period is less than some pre-specified period of time.b. An investment should be accepted if the payback is positive and rejected if it isnegative.c. An investment should be rejected if the payback is positive and accepted if it isnegative.d. An investment is acceptable if its calculated payback period is greater than some pre-specified period of time.e. An investment should be accepted any time the payback period is less than thediscounted payback period, given a positive discount rate.Difficulty level: EasyDISCOUNTED PAYBACKe 5. The length of time required for a project’s discounted cash flows to equal the initialcost of the project is called the:a. net present value.b. internal rate of return.c. payback period.d. discounted profitability index.e. discounted payback period.Difficulty level: EasyDISCOUNTED PAYBACK RULEd 6. The discounted payback rule states that you should accept projects:a. which have a discounted payback period that is greater than some pre-specified periodof time.b. if the discounted payback is positive and rejected if it is negative.c. only if the discounted payback period equals some pre-specified period of time.d. if the discounted payback period is less than some pre-specified period of time.e. only if the discounted payback period is equal to zero.Difficulty level: EasyAVERAGE ACCOUNTING RETURNc 7. An investment’s average net income divided by its average book value defines theaverage:a. net present value.b. internal rate of return.c. accounting return.d. profitability index.e. payback period.Difficulty level: EasyAVERAGE ACCOUNTING RETURN RULEb 8. An investment is acceptable if its average accounting return (AAR):a. is less than a target AAR.b. exceeds a target AAR.c. exceeds the firm’s return on equity (ROE).d. is less than the firm’s return on assets (ROA).e. is equal to zero and only when it is equal to zero.Difficulty level: EasyINTERNAL RATE OF RETURNb. 9. The discount rate that makes the net present value of an investment exactly equal tozero is called the:a. external rate of return.b. internal rate of return.c. average accounting return.d. profitability index.e. equalizer.Difficulty level: EasyINTERNAL RATE OF RETURN RULEd 10. An investment is acceptable if its IRR:a. is exactly equal to its net present value (NPV).b. is exactly equal to zero.c. is less than the required return.d. exceeds the required return.e. is exactly equal to 100 percent.Difficulty level: EasyMULTIPLE RATES OF RETURNe 11. The possibility that more than one discount rate will make the NPV of an investmentequal to zero is called the _____ problem.a. net present value profilingb. operational ambiguityc. mutually exclusive investment decisiond. issues of scalee. multiple rates of returnDifficulty level: MediumMUTUALLY EXCLUSIVE PROJECTSc 12. A situation in which accepting one investment prevents the acceptance of anotherinvestment is called the:a. net present value profile.b. operational ambiguity decision.c. mutually exclusive investment decision.d. issues of scale problem.e. multiple choices of operations decision.Difficulty level: EasyPROFITABILITY INDEXd. 13. The present value of an investment’s future cash flows divided by the initial cost of theinvestment is called the:a. net present value.b. internal rate of return.c. average accounting return.d. profitability index.e. profile period.Difficulty level: EasyPROFITABILITY INDEX RULEa 14. An investment is acceptable if the profitability index (PI) of the investment is:a. greater than one.b. less than one.c. greater than the internal rate of return (IRR).d. less than the net present value (NPV).e. greater than a pre-specified rate of return.Difficulty level: EasyII. CONCEPTSNET PRESENT VALUEd 15. All else constant, the net present value of a project increases when:a. the discount rate increases.b. each cash inflow is delayed by one year.c. the initial cost of a project increases.d. the rate of return decreases.e. all cash inflows occur during the last year of a project’s life instead ofperiodically throughout the life of the project.Difficulty level: EasyNET PRESENT VALUEa 16. The primary reason that company projects with positive net present values areconsidered acceptable is that:a. they create value for the owners of the firm.b. the project’s rate of return exceeds the rate of inflation.c. they return the initial cash outlay within three years or less.d. the required cash inflows exceed the actual cash inflows.e. the investment’s cost exceeds the present value of the cash inflows.Difficulty level: EasyNET PRESENT VALUEd 17. If a project has a net present value equal to zero, then:I. the present value of the cash inflows exceeds the initial cost of the project.II. the project produces a rate of return that just equals the rate required to accept the project.III. the project is expected to produce only the minimally required cash inflows.IV. any delay in receiving the projected cash inflows will cause the project to have a negative net present value.a. II and III onlyb. II and IV onlyc. I, II, and IV onlyd. II, III, and IV onlye. I, II, and III onlyDifficulty level: MediumNET PRESENT VALUEb 18. Net present value:a. cannot be used when deciding between two mutually exclusive projects.b. is more useful to decision makers than the internal rate of return when comparingdifferent sized projects.c. is easy to explain to non-financial managers and thus is the primary method of analysisused by the lowest levels of management.d. is not an as widely used tool as payback and discounted paybacke. is very similar in its methodology to the average accounting return.Difficulty level: EasyPAYBACKc 19. Payback is frequently used to analyze independent projects because:a. it considers the time value of money.b. all relevant cash flows are included in the analysis.c. it is easy and quick to calculate.d. it is the most desirable of all the available analytical methods from a financialperspective.e. it produces better decisions than those made using either NPV or IRR.Difficulty level: EasyPAYBACKc 20. The advantages of the payback method of project analysis include the:I. application of a discount rate to each separate cash flow.II. bias towards liquidity.III. ease of use.IV. arbitrary cutoff point.a. I and II onlyb. I and III onlyc. II and III onlye. II, III, and IV onlyDifficulty level: MediumPAYBACKd 21. All else equal, the payback period for a project will decrease whenever the:a. initial cost increases.b. required return for a project increases.c. assigned discount rate decreases.d. cash inflows are moved forward in time.e. duration of a project is lengthened.Difficulty level: MediumDISCOUNTED PAYBACKd 22. The discounted payback period of a project will decrease whenever the:a. discount rate applied to the project is increased.b. initial cash outlay of the project is increased.c. time period of the project is increased.d. amount of each project cash flow is increased.e. costs of the fixed assets utilized in the project increase.Difficulty level: MediumDISCOUNTED PAYBACKa 23. The discounted payback rule may cause:a. some positive net present value projects to be rejected.b. the most liquid projects to be rejected in favor of less liquid projects.c. projects to be incorrectly accepted due to ignoring the time value of money.d. projects with negative net present values to be accepted.e. some projects to be accepted which would otherwise be rejected under the paybackrule.Difficulty level: EasyINTERNAL RATE OF RETURNb 24. The internal rate of return (IRR):I. rule states that a project with an IRR that is less than the required rate should beaccepted.II. is the rate generated solely by the cash flows of an investment.III. is the rate that causes the net present value of a project to exactly equal zero.IV. can effectively be used to analyze all investment scenarios.a. I and IV onlyb. II and III onlyc. I, II, and III onlyd. II, III, and IV onlyDifficulty level: MediumINTERNAL RATE OF RETURNa 25. The internal rate of return for a project will increase if:a. the initial cost of the project can be reduced.b. the total amount of the cash inflows is reduced.c. each cash inflow is moved such that it occurs one year later than originally projected.d. the required rate of return is reduced.e. the salvage value of the project is omitted from the analysis.Difficulty level: MediumINTERNAL RATE OF RETURNc 26. The internal rate of return is:a. more reliable as a decision making tool than net present value whenever you areconsidering mutually exclusive projects.b. equivalent to the discount rate that makes the net present value equal to one.c. difficult to compute without the use of either a financial calculator or a computer.d. dependent upon the interest rates offered in the marketplace.e. a better methodology than net present value when dealing with unconventional cashflows.Difficulty level: MediumINTERNAL RATE OF RETURNa 27. The internal rate of return tends to be:a. easier for managers to comprehend than the net present value.b. extremely accurate even when cash flow estimates are faulty.c. ignored by most financial analysts.d. used primarily to differentiate between mutually exclusive projects.e. utilized in project analysis only when multiple net present values apply.Difficulty level: EasyINCREMENTAL INTERNAL RATE OF RETURNe 28. You are trying to determine whether to accept project A or project B. These projectsare mutually exclusive. As part of your analysis, you should compute the incrementedIRR by determining:a. the internal rate of return for the cash flows of each project.b. the net present value of each project using the internal rate of return as the discountrate.c. the discount rate that equates the discounted payback periods for each project.d. the discount rate that makes the net present value of each project equal to 1.e. the internal rate of return for the differences in the cash flows of the two projects.Difficulty level: MediumINCREMENTAL INTERNAL RATE OF RETURNb 29. Graphing the incremental IRR helps explain:a. why one project is always superior to another project.b. how decisions concerning mutually exclusive projects are derived.c. how the duration of a project affects the decision as to which project to accept.d. how the net present value and the initial cash outflow of a project are related.e. how the profitability index and the net present value are related.Difficulty level: MediumPROFITABILITY INDEXd 30. The profitability index is closely related to:a. payback.b. discounted payback.c. the average accounting return.d. net present value.e. mutually exclusive projects.Difficulty level: EasyPROFITABILITY INDEXb 31. Analysis using the profitability index:a. frequently conflicts with the accept and reject decisions generated by the application ofthe net present value rule.b. is useful as a decision tool when investment funds are limited.c. is useful when trying to determine which one of two mutually exclusive projectsshould be accepted.d. utilizes the same basic variables as those used in the average accounting return.e. produces results which typically are difficult to comprehend or apply.Difficulty level: MediumPROFITABILITY INDEXe 32. If you want to review a project from a benefit-cost perspective, you should use the_____ method of analysis.a. net present valueb. paybackc. internal rate of returnd. average accounting returne. profitability indexDifficulty level: EasyPROFITABILITY INDEXb 33. When the present value of the cash inflows exceeds the initial cost of a project, thenthe project should be:a. accepted because the internal rate of return is positive.b. accepted because the profitability index is greater than 1.c. accepted because the profitability index is negative.d. rejected because the internal rate of return is negative.e. rejected because the net present value is negative.Difficulty level: EasyMUTUALLY EXCLUSIVE PROJECTSc 34. Which one of the following is the best example of two mutually exclusive projects?a. planning to build a warehouse and a retail outlet side by sideb. buying sufficient equipment to manufacture both desks and chairs simultaneouslyc. using an empty warehouse for storage or renting it entirely out to another firmd. using the company sales force to promote sales of both shoes and sockse. buying both inventory and fixed assets using funds from the same bond issueDifficulty level: MediumMUTUALLY EXCLUSIVE PROJECTSd 35. The Liberty Co. is considering two projects. Project A consists of building a wholesalebook outlet on lot #169 of the Englewood Retail Center. Project B consists of buildinga sit-down restaurant on lot #169 of the Englewood Retail Center. When trying todecide whether or build the book outlet or the restaurant, management should relymost heavily on the analysis results from the _____ method of analysis.a. profitability indexb. internal rate of returnc. paybackd. net present valuee. accounting rate of returnDifficulty level: MediumMUTUALLY EXCLUSIVE PROJECTSc 36. When two projects both require the total use of the same limited economic resource,the projects are generally considered to be:a. independent.b. marginally profitable.c. mutually exclusive.d. acceptable.e. internally profitable.Difficulty level: EasyMUTUALLY EXCLUSIVE PROJECTSc 37. Matt is analyzing two mutually exclusive projects of similar size and has prepared thefollowing data. Both projects have 5 year lives.Project A Project B Net present value $15,090 $14,693Payback period 2.76 years 2.51 yearsAverage accounting return 9.3 percent 9.6 percentRequired return 8.3 percent 8.0 percentRequired AAR 9.0 percent 9.0 percentMatt has been asked for his best recommendation given this information. Hisrecommendation should be to accept:a. project B because it has the shortest payback period.b. both projects as they both have positive net present values.c. project A and reject project B based on their net present values.d. project B and reject project A based on their average accounting returns.e. project B and reject project A based on both the payback period and the averageaccounting return.Difficulty level: MediumINVESTMENT ANALYSISa 38. Given that the net present value (NPV) is generally considered to be the best methodof analysis, why should you still use the other methods?a. The other methods help validate whether or not the results from the net present valueanalysis are reliable.b. You need to use the other methods since conventional practice dictates that you onlyaccept projects after you have generated three accept indicators.c. You need to use other methods because the net present value method is unreliablewhen a project has unconventional cash flows.d. The average accounting return must always indicate acceptance since this is the bestmethod from a financial perspective.e. The discounted payback method must always be computed to determine if a projectreturns a positive cash flow since NPV does not measure this aspect of a project.Difficulty level: MediumINVESTMENT ANALYSISe 39. In actual practice, managers frequently use the:I. AAR because the information is so readily available.II. IRR because the results are easy to communicate and understand.III. payback because of its simplicity.IV. net present value because it is considered by many to be the best method of analysis.a. I and III onlyb. II and III onlyc. I, III, and IV onlyd. II, III, and IV onlye. I, II, III, and IVDifficulty level: MediumINVESTMENT ANALYSISa 40. No matter how many forms of investment analysis you do:a. the actual results from a project may vary significantly from the expected results.b. the internal rate of return will always produce the most reliable results.c. a project will never be accepted unless the payback period is met.d. the initial costs will generally vary considerably from the estimated costs.e. only the first three years of a project ever affect its final outcome.Difficulty level: EasyINVESTMENT ANALYSISb 41. Which of the following methods of project analysis are biased towards short-termprojects?I. internal rate of returnII. accounting rate of returnIII. paybackIV. discounted paybacka. I and II onlyb. III and IV onlyc. II and III onlyd. I and IV onlye. II and IV onlyDifficulty level: MediumINVESTMENT ANALYSISa 42. If a project is assigned a required rate of return equal to zero, then:a. the timing of the project’s cash flows has no bearing on the value of the project.b. the project will always be accepted.c. the project will always be rejected.d. whether the project is accepted or rejected will depend on the timing of the cash flows.e. the project can never add value for the shareholders.Difficulty level: MediumDECISION RULESe 43. You are considering a project with the following data:Internal rate of return 8.7 percentProfitability ratio .98Net present value -$393Payback period 2.44 yearsRequired return 9.5 percentWhich one of the following is correct given this information?a. The discount rate used in computing the net present value must have been less than 8.7percent.b. The discounted payback period will have to be less than 2.44 years.c. The discount rate used to compute the profitability ratio was equal to the internal rateof return.d. This project should be accepted based on the profitability ratio.e. This project should be rejected based on the internal rate of return.Difficulty level: MediumNET PRESENT VALUEc 44. Accepting positive NPV projects benefits the stockholders because:a. it is the most easily understood valuation process.b. the present value of the expected cash flows are equal to the cost.c. the present value of the expected cash flows are greater than the cost.d. it is the most easily calculated.e. None of the above.Difficulty level: EasyNET PRESENT VALUEa 45. Which of the following does not characterize NPV?a. NPV does not incorporate risk into the analysis.b. NPV incorporates all relevant information.c. NPV uses all of the project's cash flows.d. NPV discounts all future cash flows.e. Using NPV will lead to decisions that maximize shareholder wealth.Difficulty level: EasyPAYBACKe 46. The payback period rule:a. discounts cash flows.b. ignores initial cost.c. always uses all possible cash flows in its calculation.d. Both A and C.e. None of the above.Difficulty level: EasyPAYBACKc 47. The payback period rule accepts all investment projects in which the payback period forthe cash flows is:a. equal to the cutoff point.b. greater than the cutoff point.c. less than the cutoff point.d. positive.e. None of the above.Difficulty level: EasyPAYBACKd 48. The payback period rule is a convenient and useful tool because:a. it provides a quick estimate of how rapidly the initial investment will be recouped.b. results of a short payback rule decision will be quickly seen.c. it does not take into account time value of money.d. All of the above.e. None of the above.Difficulty level: EasyDISCOUNTED PAYBACKa 49. The discounted payback period rule:a. considers the time value of money.b. discounts the cutoff point.c. ignores uncertain cash flows.d. is preferred to the NPV rule.e. None of the above.Difficulty level: EasyPAYBACKc 50. The payback period rule:a. determines a cutoff point so that all projects accepted by the NPV rule will be acceptedby the payback period rule.b. determines a cutoff point so that depreciation is just equal to positive cash flows in thepayback year.c. requires an arbitrary choice of a cutoff point.d. varies the cutoff point with the interest rate.e. Both A and D.Difficulty level: EasyAVERAGE ACCOUNTING RETURNc 51. The average accounting return is determined by:a. dividing the yearly cash flows by the investment.b. dividing the average cash flows by the investment.c. dividing the average net income by the average investment.d. dividing the average net income by the initial investment.e. dividing the net income by the cash flow.Difficulty level: EasyAVERAGE ACCOUNTING RETURNb 52. The investment decision rule that relates average net income to average investment isthe:a. discounted cash flow method.b. average accounting return method.c. average payback method.d. average profitability index.e. None of the above.Difficulty level: EasyMODIFIED INTERNAL RATE OF RETURNd 53. Modified internal rate of return:a. handles the multiple IRR problem by combining cash flows until only one change insign change remains.b. requires the use of a discount rate.c. does not require the use of a discount rate.d. Both A and B.e. Both A and C.Difficulty level: MediumAVERAGE ACCOUNTING RETURNd 54. The shortcoming(s) of the average accounting return (AAR) method is (are):a. the use of net income instead of cash flows.b. the pattern of income flows has no impact on the AAR.c. there is no clear-cut decision rule.d. All of the above.e. None of the above.Difficulty level: MediumINTERNAL RATE OF RETURNe 55. The two fatal flaws of the internal rate of return rule are:a. arbitrary determination of a discount rate and failure to consider initial expenditures.b. arbitrary determination of a discount rate and failure to correctly analyze mutuallyexclusive investment projects.c. arbitrary determination of a discount rate and the multiple rate of return problem.d. failure to consider initial expenditures and failure to correctly analyze mutuallyexclusive investment projects.e. failure to correctly analyze mutually exclusive investment projects and the multiple rateof return problem.Difficulty level: MediumMUTUALLY EXCLUSIVE PROJECTSd 56. A mutually exclusive project is a project whose:a. acceptance or rejection has no effect on other projects.b. NPV is always negative.c. IRR is always negative.d. acceptance or rejection affects other projects.e. cash flow pattern exhibits more than one sign change.Difficulty level: EasyINTERNAL RATE OF RETURNd 57. A project will have more than one IRR if:a. the IRR is positive.b. the IRR is negative.c. the NPV is zero.d. the cash flow pattern exhibits more than one sign change.e. the cash flow pattern exhibits exactly one sign change.Difficulty level: EasyINTERNAL RATE OF RETURN RULESb 58. Using internal rate of return, a conventional project should be accepted if the internalrate of return is:a. equal to the discount rate.b. greater than the discount rate.c. less than the discount rate.d. negative.e. positive.Difficulty level: EasyINTERNAL RATE OF RETURNa 59. The internal rate of return may be defined as:a. the discount rate that makes the NPV cash flows equal to zero.b. the difference between the market rate of interest and the NPV.c. the market rate of interest less the risk-free rate.d. the project acceptance rate set by management.e. None of the above.Difficulty level: MediumMULTIPLE INTERNAL RATE OF RETURNSd 60. The problem of multiple IRRs can occur when:a. there is only one sign change in the cash flows.b. the first cash flow is always positive.c. the cash flows decline over the life of the project.d. there is more than one sign change in the cash flows.e. None of the above.Difficulty level: EasyTIMING AND SCALE ISSUES WITH INTERNAL RATE OF RETURNb 61. The elements that cause problems with the use of the IRR in projects that are mutuallyexclusive are:a. the discount rate and scale problems.b. timing and scale problems.c. the discount rate and timing problems.d. scale and reversing flow problems.e. timing and reversing flow problems.Difficulty level: MediumNET PRESENT VALUE DECISIONc 62. If there is a conflict between mutually exclusive projects due to the IRR, one should:a. drop the two projects immediately.b. spend more money on gathering information.c. depend on the NPV as it will always provide the most value.d. depend on the AAR because it does not suffer from these same problems.e. None of the above.Difficulty level: MediumPROFITABILITY INDEXe 63. The profitability index is the ratio of:a. average net income to average investment.b. internal rate of return to current market interest rate.c. net present value of cash flows to internal rate of return.d. net present value of cash flows to average accounting return.e. present value of cash flows to initial investment cost.Difficulty level: EasyINVESTMENT DECISION RULESa 64. Which of the following statement is true?a. One must know the discount rate to compute the NPV of a project but one can computethe IRR without referring to the discount rate.b. One must know the discount rate to compute the IRR of a project but one can computethe NPV without referring to the discount rate.c. Payback accounts for time value of money.d. There will always be one IRR regardless of cash flows.e. Average accounting return is the ratio of total assets to total net income.Difficulty level: MediumCAPITAL BUDGETING PRACTICE。
公司理财课件英文版(ppt 25)
Net Present Value
• The Net Present Value (NPV) of an investment is the present value of the expected cash flows,
less the cost of the investment.
Back to Example 1:
2.1 Net Present Value : FV and PV
• The amount that a borrower would need to set aside today to to able to meet the promised payment of $10,000 in one year is call the Present Value (PV) of $10,000. Note that $10,000 = $9,523.81×(1.05).
$9,500 elsewhere at 5-percent, our FV would be less
than the $10,000 that investment promised and we
would be unambiguously worse off in FV terms as
well: $9,500×(1.05) = $9,975 < $10,000.
PV＝ CF1 CF2 CF3 1 r (1 r)2 (1 r)3
NPV＝
CF0
CF1 1 r
CF2 (1 r)2
CF3 (1 r)3
＝ CF0 PV
Fisher’s Separation Principle
Given perfect capital market and certainty, the optimal investment plan is the one that maximizes the net present value of available production plans, without regard to the individuals’ subjective preferences that enter into their consumption/saving decisions. (Irving Fisher)
公司理财(双语)npv
5- 12 Decision Criteria Test - Payback
Does the payback rule account for the time value of money?
Does the payback rule account for the risk of the cash flows?
NPV, 75%
IRR, 76%
Payback, 57%
Book rate of return, 20%
Profitability Index, 12%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
SOURCE: Graham and Harvey, “The Theory and Practice of Finance: Evidence from the Field,” Journal of Financial Economics 61 (2001), pp. 187-243.
5- 14 Discounted Payback Period
Compute the present value of each cash flow and then determine how long it takes to pay back on a discounted basis
Compare to a specified required period Decision Rule - Accept the project if it pays back on
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