【文章內(nèi)容簡介】 ion Rate While the nominal rate in the U.S. has fluctuated with inflation, most of the time the real rate has exhibited far less variance than the nominal rate. When accounting for inflation in capital budgeting, one must compare real cash flows discounted at real rates or nominal cash flows discounted at nominal rates.,718,Example of Capital Budgeting under Inflation,Sony International has an investment opportunity to produce a new stereo color TV. The required investment on January 1 of this year is $32 million. The firm will depreciate the investment to zero using the straightline method. The firm is in the 34% tax bracket. The price of the product on January 1 will be $400 per unit. The price will stay constant in real terms. Labor costs will be $15 per hour on January 1. The will increase at 2% per year in real terms. Energy costs will be $5 per TV。 they will increase 3% per year in real terms. The inflation rate is 5% Revenues are received and costs are paid at yearend.,719,Example of Capital Budgeting under Inflation,The riskless nominal discount rate is 4%. The real discount rate for costs and revenues is 8%. Calculate the NPV.,720,CF0,Example of Capital Budgeting under Inflation,The depreciation tax shield is a riskfree nominal cash flow, and is therefore discounted at the nominal riskless rate. Cost of investment today = $32,000,000 Project life = 4 years Annual depreciation expense:,Depreciation tax shield = $8,000,000 .34 = $2,720,000,4,2,720,000,0,CF1,F1,9,873,315,I,NPV,4,721,Year 1 Aftertax Real Risky Cash Flows,Risky Real Cash Flows Price: $400 per unit with zero real price increase Labor: $15 per hour with 2% real wage increase Energy: $5 per unit with 3% real energy cost increase Year 1 Aftertax Real Risky Cash Flows: Aftertax revenues = $400 100,000 (1 – .34) = $26,400,000 Aftertax labor costs = $15 2,000,000 1.02 (1 – .34) = $20,196,000 Aftertax energy costs = $5 2,00,000 1.03 (1 – .34) = $679,800 Aftertax net operating CF = $26,400,000 – $20,196,000 – $679,800 = $5,524,200,722,Year 2 Aftertax Real Risky Cash Flows,Risky Real Cash Flows Price: $400 per unit with zero real price increase Labor: $15 per hour with 2% real wage increase Energy: $5 per unit with 3% real energy cost increase Year 1 Aftertax Real Risky Cash Flows: Aftertax revenues = $400 100,000 (1 – .34) = $26,400,000 Aftertax labor costs = $15 2,000,000 (1.02)2 (1 – .34) = $20,599,920 Aftertax energy costs = $5 2,00,000 (1.03)2 (1 – .34) = $700,194 Aftertax net operating CF = $26,400,000 – $ 20,599,920– $ 700,194 = $ 31,499,886,723,Year 3 Aftertax Real Risky Cash Flows,Risky Real Cash Flows Price: $400 per unit with zero real price increase Labor: $15 per hour with 2% real wage increase Energy: $5 per unit with 3% real energy cost increase Year 1 Aftertax Real Risky Cash Flows: Aftertax revenues = $400 100,000 (1 – .34) = $26,400,000 Aftertax labor costs = $15 2,000,000 (1.02)3 (1 – .34) = $21,011.92 Aftertax energy costs = $5 2,00,000 (1.03)3 (1 – .34) = $721,199.82 Aftertax net operating CF = $26,400,000 – $ 21,011.92– $ 721,199.82 = $31,066,882,724,Year 4 Aftertax Real Risky Cash Flows,Risky Real Cash Flows Price: $400 per unit with zero real price increase Labor: $15 per hour with 2% real wage increase Energy: $5 per unit with 3% real energy cost increase Year 1 Aftertax Real Risky Cash Flows: Aftertax revenues = $400 100,000 (1 – .34) = $26,400,000 Aftertax labor costs = $15 2,000,000 (1.02)4 (1 – .34) = $21,432.16 Afte