【正文】 [CIFi (1+f1 )i COFi (1+f2 )i ](1T) + Depreciation?T NPV= ? I0 [(1+K)i (1+f )i ] where CIF=cash inflows。 Budgeting=Plan detailing projected cash inflows and outflows during some future period, thus “Capital Budgeting” outlines the planned expenditures on fixed assets. 1. Multiconcepts for Capital Budgeting (1) Capital Investment Analysis Decision (2) Economic Evaluation of Investment Projects (3) Technological Economics (4) Investment Feasibility Study2. A Formal Definition of Capital Budgeting Capital budgeting is a filed of finance concerned with cost and benefit, and return and risk derived from investment project undertaken by a firm. The capital budgeting is a procedure include a set of systematic techniques dealing with how to evaluate and select investment projects under certainty or uncertainty. 廈門大學管理學院吳世農(nóng) Market Research Investment Sources Cost CBA Expenditures of Capitals Marketing Strategy Costs Ine R Profits Statement Risk Investment Analysis D Management Assets Balance Liabilities Sheet Production Finance Cash Inflow Cashflow Repayment Opportunity Study Cash Outflow Statement Analysis Preliminary Discussion Feasibility Discussion Final Proposals Study Report Exhibit 1: Diagram Suggested for Investment Project’s Feasibility Study in Firms 廈門大學管理學院吳世農(nóng) Technological Macroeconomic Feasibility Feasibility Financial Implementation Operation Feasibility Social/Cultural Environmental Feasibility Feasibility Comprehensive Review Post Feasibility Report Assessment Exhibit 1 (Continuos): Diagram Suggested for Investment Project’s Feasibility Study in Firms Advanced Topics in Capital BudgetingII. Conflicts between NPV and IRR for Mutually Exclusive Projects1. Size Effect of Investment Outlay on NPV and IRR(1) Conflict——Which Maximizes Shareholder’s Wealth? Suppose that there are two projects, A and B, n=1, K=10%, their investment outlays and NCF are presented in the following table. Project I0 NCF1 NPV (k=10%) IRR PVI A 5,000 8,000 2,273 60% % B 50,000 75,000 18,182 50% % Both projects are acceptable due to their positive values of NPV, however, given that the two projects are mutually exclusive, which one is preferred? Also, because the size of investment outlays for A and B are different. By NPV, A is better than B。 by IRR (or PVI) B is over A. This case is typical as a conflict raised from decision criteria by NPV or by IRR? 廈門大學吳世農(nóng)(2) Solution Since K=10% is assumed to be fixed, we can solve this conflict by creating a differential project (BA), if the differential project yields a positive NPV, it is obvious that B is better than A because not only a part of B will create a NPV equal to NPVA, but also create a positive NPV for the differential project (BA). Thus, we create a differential project (BA), and then calculate its NPV and IRR NPV(BA) = [(750008000)/(1+10%)](500005000)=$15909 [(750008000)/(1+IRR(BA) )]=(500005000), IRR(BA) =% No doubt, the results above suggests that the investors of the firm will be better off if project B is accepted. Advanced Topics in Capital Budgeting2. Trend Effect of NCF on NPV and IRR (1) Conflict——Which One is a Sounding Decision Rule? Suppose there are two mutually exclusive projects, A and B, the following graphs show that the trend of A’s NCFs and the trend of B’s NCFs are different. Obviously, graph 1 states that A’s NCFs are always larger than B’s NCFs over the periods, thus, NPVANPVB。 COF=cash outflows。 NPVB = 50. Will be project B better than project A? No, In fact, they are not parable!廈門大學吳世農(nóng)(2) Solution To make project A and project B parable, it is reasonable to assume that project A and project Bcan be replicated at a constant scale. Thus, project A should be superior to project B because it recovers cash flows faster. How? In order to pare projects with unequal lives, we need to assume that the projects can be replicated at constant scale and pute the NPV of infinite stream of constant replications. By doing