公司理财课资料新件英文版(ppt 25)
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(RWJ Ch 3, 4)
© Professor Ho-Mou Wu
Corporate Finance
2-0
Investment Decision
Example 1: Suppose an investment that promises to pay $10,000 in one year is offered for sale for $9,500. Your interest rate is 5%. Should you buy?
© Professor Ho-Mou Wu
Corporate Finance
2-2
Net Present Value
• The Net Present Value (NPV) of an investment is the present value of the expected cash flows, less the cost
• If you were to be promised $10,000 due in one year when interest rates are at 5-percent, your investment
be worth $9,523.81 in today’s dollars.
© Professor Ho-Mou Wu
© Professor Ho-Mou Wu
Corporate Finance
2-6
Use PV to Check Feasibility of Consumption plan
Example 2: Is the consumption plan C0＝0.9m and C1＝1.325m feasible? Use the PV formula to evaluate it.
• If you were to invest $10,000 at 5-percent interest for one year, your investment would grow to $10,500 : $10,500 = $10,000×(1.05).
The total amount due at the end of the investment is call the Future Value (FV).
of the investment.
Back to Example 1:
© Professor Ho-Mou Wu
: So you should Invest.
Corporate Finance
2-3
Net Present Va源自文库ue as the Investment Criterion
In the one-period case, the formula for NPV can be written as: ,where is cash flow at date 1
Capital Investment Decisions
2.1 Net Present Value 2.2 Project Valuation in a Riskless World
Fisher’s Principle 2.3 Present Value and Compounding 2.4 Present Value with Special Cash Flows
If we had not undertaken the positive NPV project considered on the last slide, and instead invested our $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.
Corporate Finance
2-1
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).
If r＝10%, 0.9＋ ＝2.105＝PV(C)＞1＋ ＝2.091＝PV(Y)
If r＝20%, 0.9＋
: not feasible ＝2.004＝PV(C)＞1＋ ＝2.000＝PV(Y)
If r＝30%, 0.9＋
: not feasible ＝1.919＝PV(C)＜1＋ ＝1.923＝PV(Y)
© Professor Ho-Mou Wu
Corporate Finance
2-4
2.2 Project Evaluation in a Riskless World
Why do we use NPV as the investment criterion ? Assume Perfect Capital Market and Two Period
C1
C1 Y1=1.2m
Saver (lending)
B
1+r
Y
1
slope = -(1+r) Spender (borrowing)
A
© Professor Ho-Mou Wu
C0 Y0=1m PV(Y) Y0
Corporate Finance
Y1 (1 r)
C0 2-5
(I) Saving (Financing) Decision
: feasible!
© Professor Ho-Mou Wu
Corporate Finance
2-7
(Ⅱ) Investment Opportunities
© Professor Ho-Mou Wu
Corporate Finance
2-0
Investment Decision
Example 1: Suppose an investment that promises to pay $10,000 in one year is offered for sale for $9,500. Your interest rate is 5%. Should you buy?
© Professor Ho-Mou Wu
Corporate Finance
2-2
Net Present Value
• The Net Present Value (NPV) of an investment is the present value of the expected cash flows, less the cost
• If you were to be promised $10,000 due in one year when interest rates are at 5-percent, your investment
be worth $9,523.81 in today’s dollars.
© Professor Ho-Mou Wu
© Professor Ho-Mou Wu
Corporate Finance
2-6
Use PV to Check Feasibility of Consumption plan
Example 2: Is the consumption plan C0＝0.9m and C1＝1.325m feasible? Use the PV formula to evaluate it.
• If you were to invest $10,000 at 5-percent interest for one year, your investment would grow to $10,500 : $10,500 = $10,000×(1.05).
The total amount due at the end of the investment is call the Future Value (FV).
of the investment.
Back to Example 1:
© Professor Ho-Mou Wu
: So you should Invest.
Corporate Finance
2-3
Net Present Va源自文库ue as the Investment Criterion
In the one-period case, the formula for NPV can be written as: ,where is cash flow at date 1
Capital Investment Decisions
2.1 Net Present Value 2.2 Project Valuation in a Riskless World
Fisher’s Principle 2.3 Present Value and Compounding 2.4 Present Value with Special Cash Flows
If we had not undertaken the positive NPV project considered on the last slide, and instead invested our $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.
Corporate Finance
2-1
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).
If r＝10%, 0.9＋ ＝2.105＝PV(C)＞1＋ ＝2.091＝PV(Y)
If r＝20%, 0.9＋
: not feasible ＝2.004＝PV(C)＞1＋ ＝2.000＝PV(Y)
If r＝30%, 0.9＋
: not feasible ＝1.919＝PV(C)＜1＋ ＝1.923＝PV(Y)
© Professor Ho-Mou Wu
Corporate Finance
2-4
2.2 Project Evaluation in a Riskless World
Why do we use NPV as the investment criterion ? Assume Perfect Capital Market and Two Period
C1
C1 Y1=1.2m
Saver (lending)
B
1+r
Y
1
slope = -(1+r) Spender (borrowing)
A
© Professor Ho-Mou Wu
C0 Y0=1m PV(Y) Y0
Corporate Finance
Y1 (1 r)
C0 2-5
(I) Saving (Financing) Decision
: feasible!
© Professor Ho-Mou Wu
Corporate Finance
2-7
(Ⅱ) Investment Opportunities