公司理財(cái)bondmarketandalternativeinvestmentrules(3)-資料下載頁(yè)
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【正文】 ng system. RANK all alternatives and select the best one. Independent Projects: accepting or rejecting one project does not affect the decision of the other projects. Must exceed a MINIMUM acceptance criteria.,(4) The Profitability Index (PI) Rule,Minimum Acceptance Criteria: Accept if PI 1 Ranking Criteria: Select alternative with highest PI Disadvantages: Problems with mutually exclusive investments Advantages: May be useful when available investment funds are limited Easy to understand and communicate Correct decision when evaluating independent projects,3.4 Why Use Net Present Value?,Accepting positive NPV projects benefits shareholders. NPV uses cash flows NPV uses all the cash flows of the project NPV discounts the cash flows properly,The Net Present Value (NPV) Rule,Net Present Value (NPV) = Total PV of future CF’s + Initial Investment Estimating NPV: 1. Estimate future cash flows: how much? and when? 2. Estimate discount rate 3. Estimate initial costs Minimum Acceptance Criteria: Accept if NPV 0 Ranking Criteria: Choose the highest NPV,Good Attributes of the NPV Rule,1. Uses cash flows 2. Uses ALL cash flows of the project 3. Discounts ALL cash flows properly Reinvestment assumption: the NPV rule assumes that all cash flows can be reinvested at the discount rate.,The Practice of Capital Budgeting,Varies by industry: Some firms use payback, others use accounting rate of return. The most frequently used technique for large corporations is IRR or N
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