【文章內容簡介】 e Electric Motor Factory (choosing to build a $10 million factory) ?8,000 motors/ month for 20 yrs ? Cost = $ each ? Price = $? Profit = $10/motor or $80,000/month ? Factory life is 20 years with a scrap value of $1 million ?Should the pany invest? 169。2020 Pearson Education, Inc. Chapter 15 42 The Net Present Value Criterion for Capital Investment Decisions ?Assume all information is certain (no risk) ?R = government bond rate ?Discount rates below , NPV is positive ?Discount rates above , NPV is negative %*)1(1)1(96.. . . )(1. 9 6)(1. 9 6 10 N P V20202???????????RRRRR169。2020 Pearson Education, Inc. Chapter 15 43 Net Present Value of a Factory Interest Rate, R 0 6 Net Present Value ($ millions) 4 2 0 2 4 6 8 10 ?Firm should not invest for discount rates below ?Firm should not invest for discount rates above R* = 169。2020 Pearson Education, Inc. Chapter 15 44 The Net Present Value Criterion for Capital Investment Decisions ?When determining whether to invest or not, must distinguish between real and nominal rates ?Real versus Nominal Discount Rates ?Adjusting for the impact of inflation ?Assume price, cost, and profits are in real terms ? Inflation = 5% 169。2020 Pearson Education, Inc. Chapter 15 45 Real Versus Nominal Discount Rates ?Assume price, cost, and profits are in real terms ?Therefore, ? P = ()() = , Year 2 P = ()() = … ?C = ()() = , Year 2, C =…. ? Profit remains $960,000/year 169。2020 Pearson Education, Inc. Chapter 15 46 Real Versus Nominal Discount Rates ?If the cash flows are in real terms, then the discount rate must be in real terms as well ?Opportunity cost of the investment, so must include inflation here if doing it elsewhere ?Real R = nominal R inflation = 9% 5% = 4% 169。2020 Pearson Education, Inc. Chapter 15 47 Net Present Value of a Factory Interest Rate, R 0 6 Net Present Value ($ millions) 4 2 0 2 4 6 8 10 ** If R = 4%, the NPV is positive. The pany should invest in the new factory. 169。2020 Pearson Education, Inc. Chapter 15 48 The Net Present Value Criterion for Capital Investment Decisions ?Negative Future Cash Flows ?Companies expect losses in certain situations ? Take time to build demand ? High up front costs that lower over time ?Investment should be adjusted for construction time and losses 169。2020 Pearson Education, Inc. Chapter 15 49 The Net Present Value Criterion for Capital Investment Decisions ?Electric Motor Factory ?Construction time is 1 year ? $5 million expenditure today ? $5 million expenditure next year ?Expected loss is $1 million the first year and $ million the second year ?Profit is $ million/yr. until year 20 ?Scrap value is $1 million 169。2020 Pearson Education, Inc. Chapter 15 50 The Net Present Value Criterion for Capital Investment Decisions 20205432)1(1)1(96. . . .)1(96.)1(96. )(1.5)(11)(15 5 N P VRRRRRRR???????????????169。2020 Pearson Education, Inc. Chapter 15 51 Adjustments for Risk ?Determining the discount rate for an uncertain environment: ?This can be done by increasing the discount rate by adding a riskpremium to the riskfree rate ? Amount of money that a riskaverse individual will pay to avoid taking a risk 169。2020 Pearson Education, Inc. Chapter 15 52 Diversifiable vs. Nondiversifiable Risk ?Diversifiable risk can be eliminated by investing in many projects or by holding the stocks of many panies ?Nondiversifiable risk cannot be eliminated and should be entered into the risk premium 169。2020 Pearson Education, Inc. Chapter 15 53 Diversifiable vs. Nondiversifiable Risk ?Diversifying spreads risk over many options ?Invest in many types of investments – diversify portfolio ?Firms invest in many different projects ?No reward for assets that have only diversifiable risk – tend to earn return close to risk free return on average 169。2020 Pearson Education, Inc. Chapter 15 54 Diversifiable vs. Nondiversifiable Risk ?Some risk cannot be eliminated or avoided ?Company profits depend on the economy – boom or recession ?Future economic growth is uncertain so cannot eliminate all risk ? Investors should be rewarded for bearing this risk ?Opportunity cost of investing is higher – must include risk premium 169。2020 Pearson Education, Inc. Chapter 15 55 Diversifiable vs. Nondiversifiable Risk ?The Capital Asset Pricing Model (CAPM) ?Model in which the risk premium for a capital investment depends on the correlation of the investment’s return with the return on the entire stock market ?If you invest in a mutual fund, there is no diversifiable risk but there is nondiversifiable risk since stocks tend to move with economy ? Expected return on stock is higher than risk free investment 169。2020 Pearson Education, Inc. Chapter 15 56 Capital Asset Pricing Model ?Suppose you invest in the entire stock market (mutual fund) ?rm = expected return of the stock market ?rf = risk free rate ?rm rf = risk premium for nondiversifiable risk ?Additional expected return you get for bearing the nondiversifiable risk of the stock market 169。2020 Pearson Education, Inc. Chapter 15 57 Capital Asset Pricing Model ?Return on some assets is correlated with stock market as a whole ?CAPM summary of relationship between expected return and risk premium b e t a a s s e t a s s e t an on r e t u r n e x p e c t e d ???????ifmfirrrrr )(169。2020 Pearson Education, Inc. Chapter 15 58 Adjustments for Risk ?The asset beta, ?, measures the sensitivity of an asset’s return to ma