高级投资项目管理和经济效益评价

PPT 内容
PPT 图集

1. 厦门大学管理学院博士研究生课程报告八高级投资项目管理和经济效益评价 —— 理论、方法和实践厦门大学管理学院吴世农 Advanced Capital Budgeting ——Theory, Methods & Applications Wu Shinong School of Management Xiamen University
2. Advanced Topics in Capital BudgetingI. What is Capital Budgeting? Capital=Fixed Assets used in production/service; Budgeting=Plan detailing projected cash inflows and outflows during some future period, thus “Capital Budgeting” outlines the planned expenditures on fixed assets. 1. Multi-concepts for Capital Budgeting (1) Capital Investment Analysis & Decision (2) Economic Evaluation of Investment Projects (3) Technological Economics (4) Investment Feasibility Study 2. 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.
3. 厦门大学管理学院吴世农 Market Research Investment Sources & Cost CBA Expenditures of Capitals Marketing Strategy Costs & Income 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
4. 厦门大学管理学院吴世农 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
5. Advanced Topics in Capital BudgetingII. Conflicts between NPV and IRR for Mutually Exclusive Projects 1. 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% 45.46% B 50,000 75,000 18,182 50% 36.36% 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?
6. 厦门大学吴世农 (2) Solution Since K=10% is assumed to be fixed, we can solve this conflict by creating a differential project (B-A), 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 (B-A). Thus, we create a differential project (B-A), and then calculate its NPV and IRR NPV(B-A) = [(75000-8000)/(1+10%)]-(50000-5000)=$15909 [(75000-8000)/(1+IRR(B-A) )]=(50000-5000), IRR(B-A) =48.8% No doubt, the results above suggests that the investors of the firm will be better off if project B is accepted.
7. Advanced Topics in Capital Budgeting 2. 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, NPVA>NPVB; graph 2 states for the earlier periods A’s NCFs are larger than B’s NCFs, thus NPVA > NPVB, but for the later periods (after K*) A’s NCFs are smaller than B’s NCFs, thus NPVANPV B B A NPVA
8. 厦门大学吴世农 For graph 1, project A will be chosen for investment while project be will be given up. The decision is clear. For graph 2, it is hard to say which one is better. The question can not be answered until we do a further study. (2) Solution To illustrate the case shown in graph 2, the following table contains necessary information for making the accept/reject decision. Project I0 NCF1 NCF2 NPV(K=10%) IRR NPV(K=20%) A 1000 1000 310 165.3 24.8% 48.6 B 1000 200 1200 173.6 20% 0 To answer the question for the case of graph 2, we has to create a differential project (B-A), we regard the difference of B’s NCF and A’NCF in the first year (NCF1B -NCF1A) as I1, which is a negative value (or cash outflow). Also we treated the difference of B’s NCF and A’NCF in the second year (NCF2B -NCF1A) as NCF1, which is a positive value (or cash inflow). Thus the differential project’s NPV and IRR can be shown as follows:
9. Advanced Topics in Capital Budgeting NPV(B-A) = [890/(1+10%)] - 800 = $9.1 [890/(1+IRR(B-A))] - 800; IRR(B-A) = 11.23% By the calculations above, it suggests that project B is better than project A。 3. Sign Effect of NCFs on NPV and IRR (1) Conflict——Which One is Applicable? We one discussed a classification of cash flows: conventional NCF and non-conventional NCF, the rational behind this classification is to identify applicability of capital budgeting techniques, particularly for NPV and IRR. If a project’s stream of estimated NCFs changes sign more than once, the stream of NCFs is non-conventional. In this case, IRR is not applicable because it can result in multiple rates of return! Why? A simple answer to this question is that if the stream of NCFs changes sign more than one time, mathematically, solving the equation of IRR will results in more than one solutions——Multiple Rates of Returns.
10. 厦门大学吴世农 Geometrically, the multiple rates of return can be shown in the following graph. NPV 0 K Some Studies show that cash flows of investment projects were highly associated with economic environment, market competition, management ability and many others. In practice, it is common that NCF changes sign many times during its entire life as the influential factors change. Thus, IRR is ineffective to the case of non-conventional cash flows.
11. Advanced Topics in Capital Budgeting (2) Solution Oil-well Pump Investment is a typical case in capital budgeting to show the problem of multiple rates of return if IRR is employed to evaluate this project’s IRR. A oil company is trying to decide whether or not to install a high-speed pump on an oil-well which is already in operation. The pump will cost $1,600 to install. The pump will, for the first year, generate $10,000 more oil than the pump used now, but for the second year the new pump will generate $10,000 less oil because the well has been depleted. Should the oil company install the high-speed pimp? We summarize the estimated incremental cash flows and present them in the following table. Year 0 1 2 NCF -1,600 10,000 -10,000 (a) Confusing Solution Resulted from IRR 1600=[10000/(1+IRR)1 ]+[-10000/(1+IRR)2 ] [-1600/(1+IRR)]+[10000/(1+IRR)1 ]+[-10000/(1+IRR)2 ]=0
12. 厦门大学吴世农 Because this equation shows that NCF change its sign from “+” to “-” one time, the solution to this equation produces two alternative results: IRR=25% IRR=400% Obviously, the results are confusing and hard to interpreted. NPV IRR=25% IRR=400% 1000 500 100 200 300 400 500 K(%) -500 -1000 -1500
13. Advanced Topics in Capital Budgeting (b) Alternative Solution Offered by Teichrow (1964) Teichrow thought the Oil-well Pump Investment in a different way——add the cash flows of two adjacent periods (period 0 and period 1) together by a logically economic way to make NCF’s sign change to conventional. Assume put money into the investment twice: $-1600 at the time of the initial investment, and $-10000 in the second time period. The project can be thought of as lending +$10000 at 10% (cost of capital) to the firm in the first time period. So, the first, the firm invests $-1600 now and expects to earn the IRR at the end of the first period, that is 1600(1+IRR)
14. 厦门大学吴世农 In the second period, the difference between this result 1600(1+IRR) and the amount of money (+10000), which the project lends to the firm at 10%, is the amount borrowed at 10%, the future value of this difference at the end of the second time period is [10000-1600(1+IRR)](1+10%) Thus, we can establish an new equation to solve IRR [10000-1600(1+IRR)](1+10%) = $10000 IRR=-43.18% This answer suggests that he project must be rejected. (c) Simple Solution Resulted from NPV NPV=[10000/(1+10%)1 ]+[-10000/(1+10%)2 ] - 1600 = 466.41-1600=$-1133.59 This solution provided by NPV suggests that this project must be rejected, this is consistent with the conclusion by Teichrow’s.
15. Advanced Topics in Capital BudgetingIII. Capital Budgeting with Inflation 1. Inflation Effect on Cost of Capital Inflation must considered in capital budgeting since investors will incorporated expectation about inflation into their required rate of return. In fact, Nominal Rate of Return, which we usually see, consists of real rate of return and inflation rate. Nominal Rate of Return (Kn) is a real rate of return (K) plus inflation rate (f), but we can not simply add these two components together, nominal rate of return is lager than a result from an addition of K and i. More precisely, (1+Kn ) = (1+K)(1+f) Kn = K+f+Kf 2. Capital Budgeting by NPV under Inflation (1) Cash Inflows and Outflows Grow with the Same Inflation Rate NPV= [ NCFi(1+f)i /(1+K)i(1+f)i ]-I0  [ NCFi /(1+K+f)i ]-I0
16. 厦门大学吴世农 Thus, if the inflation is reflected in both the cash flows and in the required rate of return, the resulting NPV will be free of inflation bias. (2) Different Inflation on Cash Inflows and Outflows [CIFi (1+f1 )i -COFi (1+f2 )i ](1-T) + DepreciationT NPV=  -I0 [(1+K)i (1+f )i ] where CIF=cash inflows; COF=cash outflows; f1 and f2 = inflation rates for CIF and COF, respectively; f= average inflation rate; T= tax rate.
17. Advanced Topics in Capital BudgetingIV. Capital Budgeting for Projects with Unequal Lives 1. Mutually Exclusive Projects with Different Lives (1) Problem Raised from the Assumption on Equal Life Usually, capital budgeting assumes that all mutually exclusive projects have the same life (and scale). In practice, this assumption many not be hold. Given that a set of mutually exclusive projects have different lives, how to evaluate and comparing their NPVs? Suppose that there are two mutually exclusive projects, A and B, K=10% and their NCFs are presented in the following table. Year 0 1 2 3 n NPV(K=10%) Project A -1000 600 600 2 41 Project B -1000 400 400 475 3 50 By calculation, NPVA = 41; NPVB = 50. Will be project B better than project A? No, In fact, they are not comparable!
18. 厦门大学吴世农 (2) Solution To make project A and project B comparable, 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 compare projects with unequal lives, we need to assume that the projects can be replicated at constant scale and compute the NPV of infinite stream of constant replications. By doing so, we finally have the following formula to compute NPV for project A and project B, assuming that both A and B are replicated at constant scale forever. (1+K)n NPV( n,  ) = NPN(n) (1+K)n -1 By employing the formula above to project A and project B, we find that NPVA ( n,  ) = $ 236 NPVB ( n,  ) = $ 202 The results suggest that project A is superior to project B, thus, the firm must accept project A instead of project B!
19. Advanced Topics in Capital Budgeting 2. Important Notices (1) Reasonable Judgement on Replication Simple NPV rule, if misused, also can lead to wrong decision. For mutually exclusive projects with unequal lives, correct usage of simple NPV depends on whether or not the projects can be reasonably assumed to be replicable. (2) Implication of NPV with Infinite Replication at Constant Scale Infinite Replication at Constant Scale implies that the projects will be repeated at a constant scale every n years. Such an implication is applicable to some cases in practice such as forestry operation, X’mas tree planting and harvesting, raising pigs or chickens, and so on. (3) A Problem Remained Unsolved——Duration We may try to find out an optimal life——duration of a project. This optimal problem can be solved with different criteria: (a) Use the simple NPV rule; (b) Use the IRR rule; (c) Use NPV rule with constant scale replication.
20. 厦门大学吴世农 For the same problem, you may find that the solutions from the three approaches will yield different answers. However, a key to achieving the correct answer is to maximize NPV of a stream of projects replicated at constant scale.
21. Advanced Topics in Capital BudgetingV. Capital Budgeting Under Uncertainty 1. Expected NPV and Variance of NPV (1) NCFi with probability Distribution In many cases in practice, a firm is faced with an investment project which NCFs are uncertain, for each period of n periods, there may be more than one possible values of NCF associated with probabilities。 To determine NPV under uncertainty, it is necessary to identify whether NCFs in each period are independent or dependent. (a) Independent NCFi If NCF in each Period is independent to each others, then, then the expected NCF in each period will be equal an averaged NCF, and the expected NPV of a project will be equal to a cumulative sum from the average of discounted expected NCF of each period minus I0 . Similarly, we can calculate a variance of NCF for each period and a variance of a project.
22. 厦门大学吴世农 Year State NCFij Pij =(Probability) Expected NCF 1 1 5000 80% 2 6000 20% 5200 2 1 8000 70% 2 10000 30% 5900 3 1 10000 80% 2 9000 20% 9800 4 1 10000 60% 2 12000 40% 10800 For example, a firm will invest $300,000 million to produce Green-battery, K=10, n=4, and the project’s NCFs are independent one period to others, as presented in above table. Expected NCFi Expected NPV=E(NPV)=  ----------------------- - I0 (1+K)n
23. Advanced Topics in Capital Budgeting (a) Dependent NCFi Dependent NCFi is defined as NCF in one period will influence NCF in next period, or how much NCF in the next period is will be related with NCF in the previous period. For example, A firm wants to invest $1000 million to produce auto-glass, the equipment of project is expected to have 3-year life, K=10%. After the project is in operation, NCFs appear in the first year, the second year, …, the fifth year are different, in addition, in each year, there may be many values of NCF associated with probabilities. The following graph presents a situation where NCF is a random variable and the NCF in one period is dependent to NCF in other period.
24. 厦门大学吴世农 Auto-glass Project’s NCFs and Probability Distribution ($ million) Period 1 Period 2 Period 3 1200 (60%) 1200 (50%) NCF3 1000 (60%) NCF2 1000 (40%) 900 (70%) NCF1 1000 (50%) NCF3 600 (30%) 3000 (50%) 2500 (60%) NCF3 2000 (40%) NCF2 2600 (50%) 2200 (50%) 2200 (40%) NCF3 2000 (50%)
25. Advanced Topics in Capital Budgeting (2) Expected NPV and Variance for Dependent NCFs Suppose that a project needs an investment outlay $10000, n=2, K=10%. The project is risky and its NCFs are uncertain. The following table indicates the project’s NCFs and probabilities associated with NCFs. Obviously, in the first period, it is possible for the project to have either NCF=$7000 with 90% probability or NCF=$2000 with 10% probability. In the second period, given that state 1 in the first period happens, it is possible for the project to have either NCF=$10000 with 70% probability or NCF=$9000 with 30% probability; given that state 2 in the first period happens, it is possible for the project to have either NCF=$2000 with 50% probability or NCF=$1000 with 50% probability. The questions is that under such a uncertainty, what is expected NPV and its risk (standard deviation)? Period State NCF Probability Period State NCF Probability 1 10000 70% 1 7000 90% 2 9000 30% 1 2 1 2000 50% 2 2000 10% 2 1000 50%
26. 厦门大学吴世农 (a) Find possible combinations of NCFs Combination of NCFs Probability for Combination $7000, $10000 (90%)(70%)=63% $7000, $9000 (90%)(30%)=27% $2000, $2000 (10%)(50%)=5% $2000, $1000 (10%)(50%)=5% Total 100% (b) Determine possible NPV for each combination State NPVj Probability 1 -1000+7000(0.909)+10000(0.826)=4624 0.63 2 -1000+7000(0.909)+ 9000(0.826)=3797 0.27 3 -1000+2000(0.909)+ 2000(0.826)=-6530 0.05 4 -1000+2000(0.909)+ 1000(0.826)=-7356 0.05 Total 1.00 (c) Compute Expected NPV and Variance E(NPV)=4623(63%)+3797(27%)+(-6530)(5%)+(-7356)(5%)=$3242 S(NPV)=[ (NPVj -3242)2 Probability]1/2 =$3254
27. Advanced Topics in Capital BudgetingVI. Project Abandonment 1. Why to Abandon a Project? (1) Economic Environment (2) Market Competition (3) Product-Consumption Cycle (4) Technological Changes (5) Management Team (6) Wrong Estimation in Capital Budgeting Sales Test Growth Mature Decline t
28. 厦门大学吴世农 2. When to Abandon a Project? (1) Project Abandonment Under Certainty Suppose that a firm invests $10000 in a project, K=10%, n=5. The following table contains the project’s data for making the accept/reject decision and the abandonment decision. Year 1 2 3 4 5 NCF 5000 4000 3000 2000 1000 Salvage(F) 7000 5000 3000 1000 0 (a) Is the project acceptable? NPV= 5000(0.909)+4000(0.826)+3000(0.751)+2000(0.683)+1000(0.683) -10000 = $2089 > 0, so the project should be accepted! (b) Should be the project be abandoned after its operation? Yes, because the project’s NCFs rend to decline year by year! (c) When to abandon the project? The firm should abandon the project when the NPV is maximized! The following Calculation show Max(NPV) appears when n=3. Why?
29. Advanced Topics in Capital Budgeting (c-1) NPV for 5-year Operation: NPV= 5000(0.909)+4000(0.826)+3000(0.751)+2000(0.683)+1000(0.621) -10000 = $2089 (c-2) NPV for 4-year Operation: NPV= 5000(0.909)+4000(0.826)+3000(0.751)+2000(0.683)+1000(0.683)- -10000 = $2157 (c-3) NPV for 3-year Operation: NPV= 5000(0.909)+4000(0.826)+3000(0.751)+3000(0.751)-10000 = $2355=Max(NPV) (c-4) NPV for 2-year Operation: NPV= 5000(0.909)+4000(0.826)+5000(0.826)-10000 = $1979 (c-5) NPV for 1-year Operation: NPV= 5000(0.909)+7000(0.909)-10000 = $908
30. 厦门大学吴世农 (2) Project Abandonment Under Uncertainty Suppose that a firm considers a project which initial outlay is $10000, K=10%, n=2, and its NCFs and associated probabilities were shown in the previous section (see IV). If the firm expected that salvage value(F) by the end of period 1 is $3000 while nothing left by the end of period 2, will this project is acceptable? If yes, should be it abandoned after operation? (a) Is the project acceptable? By computation from Section IV, E(NPV)>0, so the project must be accepted! E(NPV)=4623(63%)+3797(27%)+(-6530)(5%)+(-7356)(5%)=$3242 S(NPV)=[ (NPVj -3242)2 Probability]1/2 =$3254 (b) When to Abandon the Project? Year1 or Year2? (b-1): If the project is abandoned at the end of year 2, then E(NPV)=$3242 S(NPV)=$3254
31. Advanced Topics in Capital Budgeting (b-2): If the project is abandoned at the end of year 1, then E(NPV)=4623(63%)+3797(27%)+(-5455)(5%)+(-5455)(5%)=$3392 S(NPV)=[ (NPVj -3392)2 Probability]1/2 =$2971 The results above come from the following table: State NPVj Probability 1 -1000+7000(0.909)+10000(0.826)=4624 0.63 2 -1000+7000(0.909)+ 9000(0.826)=3797 0.27 3 -1000+(2000+3000)(0.909) =-5455 0.05 4 -1000+(2000+3000)(0.909) =-5455 0.05 Total 1.00 (b-3) Decisions The first, the results suggest that abandoning the project at the end of year 1 shows a larger NPV and less standard deviation by a comparison to NPV and standard deviation resulted from abandoning the project at the end of year 2, so the project should be abandoned at the end of year1.
32. 厦门大学吴世农 The second, the project will not be abandoned by the end of year 1 if the NCF=$70000 in the first year, but will be abandoned if the NCF = $2000 in the first year. (3) Optimal Project Life for Continuos Variable in Capital Budgeting (a) Continuos Variable in Capital Budgeting In practice, some firm may be faced with some capital budgeting problems which variables such as price, profit and cash flow are continuous variables, for instance, brewery industry, forests plantation, raising chicken, and son on. There are two questions needed to answer for these case: (a-1) What is NPV for a Project with continuos variables? (a-2): How to determine an optimal life for these projects? (b) Illustration Suppose that an investment in a winery will produce the net after-tax profit ($ per bottle) on a bottle of red wine can be approximately by the following equation: Profit= (3t) 1/2 where t= number of years held for aging prior to sale.
33. Advanced Topics in Capital Budgeting Also, assume that K=10%, investment outlay per bottle=$1. Thus, NPV for each bottle is: NPV= -cost + [(3t) 1/2]/(1+K)t =-1+ [(3t) 1/2]/(1+10% )t Obviously, aging the wine longer will increase the net revenue, but also increase the capital or carrying costs. Therefore, the management of the winery want to chose t* to maximize NPV. (c) Maximize NPV per Bottle Set d(NPV)/d(t) = 0 t*=1/[2Ln(1+K)]=1/[2Ln(1.1)] = 5.2 Years (d) Alternative Solution Year Price/bottle PV Price/bottle NPV 1 $1.73 $1.57 $0.57 2 $2.45 $2.02 $1.02 3 $3.00 $2.25 $1.25 4 $3.46 $2.36 $1.36 5* $3.87 $2.40 $1.40 6 $4.24 $2.39 $1.39
34. Advanced Topics in Capital Budgeting VII. Optimal Capital Budgeting—MCC-IOS Method 1. Marginal Cost of Capital ——MCC (1) What is MCC? The marginal cost of any item is the cost of another unite of that item. As defined in Economics, the marginal cost of labor is the cost of adding on additional worker. The Marginal cost of capital id defined as the cost of obtaining another or additional dollar of new capital. (2) Characteristics of MCC (a) The marginal cost of capital is, in fact, one type or special case of the weighted average cost of capital. In other words, the marginal cost of capital can be determined by an optimal capital structure based on market value and by costs of new capitals raised; (b) In theory, the marginal cost of capital will rise as more and more new capital is raised. This suggests that any firm can not raise an unlimited amount of capital at a fixed WACC.
35. 厦门大学吴世农 (3) How to Measure and Determine the Marginal Cost of Capital? (a) Example & Data Assume that Carson Food has a target capital structure based on market value and other information as follows. Debt $3000000 30% Preferred Stock 1000000 10% Common Stock 6000000 60% (300000 shares) Total Market Value $10000000 100% Stock Price = P0 = $20 Next Expected DPS = D1 = $1.6 Constant Growth Rate = g = 7% Tax Rate = T = 40% Current Interest Rate on Debt=Kd=10% Flotation Cost = F =10% Current Cost of Preferred Stock = K = 12% (b) Calculate Ks = ? Ks = ( D1/P0 ) + g = (1.6/20) + 7% = 15% Note that Gordon Constant Growth Model is applicable due to a constant g!
36. Advanced Topics in Capital Budgeting (c) Calculate WACC1 =? WACC1 = Ka = Wd Kd (1-T) + Wp Kp + Ws Ks = 0.3(10%)(1-40%) + 0.1(12%) + 0.6 (15%) = 1.8% + 1.2% + 9% = 12% Note the result above means that the firm will raise one unite of new capital consisting of 30% of debt, 10% of preferred stock and 60% of common equity at an average or overall cost 12% by the target capital structure. (d) From WACC to MCC——Raising New Capital First Time As more and more new capital is required over a given time period, the cost of debt and the cost of equity will begin to rise, thus the overall cost of each unite of new capital will increase above 12%. By the following assumptions, we are able to find out MCC with the retained earnings are used as new capital at first. Assumption 1: Carson Food has the retained earnings only from this this year’s total earnings, and Retaining Earnings=Total Earnings (Payout Ratio)= $840000(50%)=$420000;
37. 厦门大学吴世农 Assumption 2: that Carson Food approved an investment project with capital expenditure of $1 million, to maintaining the target capital structure, the firm has to raise 30% new debt, 10% new preferred stock and 60% new equity; Assumption 3: that the new common equity will be firstly raised by the retaining earnings; Assumption 4: the cost of debt remains the same as 10% if the retained earnings are used; Thus, Ks2 = [ D1/P0 ( 1-F)] + g = [1.6/20(1-10%)] + 7% = 15.9% Kp2 = D1/P0 (1-F) = 2.4/20(1-10%) = 13.33% MCC2 =WACC2 = Wd Kd (1-T) + Wp Kp + Ws Ks = 0.3(10%)(1-40%) + 0.1(13.33%) + 0.6 (15.9%) = 1.8% + 1.333% + 9.5% = 12.63% The result above means that WACC, which is MCC, is 12% so long as retained earnings are used, but MCC will jumps from 12% to 12.63% as soon as Carson used up the retained earnings $420000.
38. Advanced Topics in Capital Budgeting (e) First Break Point in MCC Now we also can figure out a break point which indicates that the total amount of new capital Carson can raise at 12% (rather than 12.63%) before it is forced to sell new common stock. After this break point, Carson will have to raise new capital by selling new common stock and the overall cost is 12.63% rather than 12%. Break Point=Total Amount of New Capital=X= Retained Earnings/60% =42000/60%=$700000 The result above means that the total amount of new capital is $700000 which consists of 30% from New Debt: 700000(30%)=$210000 at cost of 10% 10% from Preferred S.: 700000(10%)=$100000 at cost of 12% 60% from Retained E.: 700000(60%)=$420000 at cost of 15% Thus, implication of the result above is twofold. If Carson Uses less than the total of new capital $7000000, WACC=12%; If Carson uses more than the total of new capital $7000000, WACC=12.63%.
39. 厦门大学吴世农 (f) Second Break Point in MCC Suppose that Carson only can enjoy the low interest rate 10% if it borrow $3000000, if Carson wants to borrow more debt, the new debt will cost at 12%, while the others remain unchanged. Thus, MCC2 =WACC2 = Wd Kd (1-T) + Wp Kp + Ws Ks = 0.3(12%)(1-40%) + 0.1(13.33%) + 0.6 (15.9%) = 2.16% + 1.333% + 9.5% = 12.993% Again, we can figure out another or second break point which indicates that the total amount of new capital Carson can raise at 12.63% in stead 12.993% before it is forced to borrow new debt. After the second break point, Carson will have to raise new capital by borrowing new debt and the overall cost will jump from 12.63% to 12.993%. Break Point=Total Amount of New Capital=X= New Debt/30% =$300000/30%=$1000000 The result above means that the total amount of new capital is $1000000 which consists of
40. Advanced Topics in Capital Budgeting 30% from New Debt: 1000000(30%)=$300000 at cost of 12% 10% from Preferred S.: 1000000(10%)=$100000 at cost of 13.33% 60% from Retained E.: 1000000(60%)=$600000 at cost of 15.90% Thus, implication of the result above is twofold. If Carson in second time Uses less than the total of new capital $10000000, WACC=12.63%; If Carson uses more than the total of new capital $10000000, WACC = 12.993%. (g) Summary on MCCs WACC/MCC(%) MCC3=12.993% MCC2=12.63% MCC1=12% New Capital $700,000 $1,000,000
41. 厦门大学吴世农 2. Investment Opportunity Schedule——IOS (1) What is IOS? IOS is a list of proposed or potential investment project by a graph, which is a plot of each project’s IRRs in descending order versus the dollars of new capital required to finance the projects given that the targeted capital structure is remains unchanged so that minimum IRR is larger than the WACC. (2) Notice for IOS (a) Mutually Inclusive Projects If the proposed projects are mutually inclusive, there will exist one IOS for these projects only. For example, if there are 5 projects, A, B, C, D, and E which are mutually inclusive, so there exists one IOS for for A, B, C, D, and E. (b) Mutually Exclusive Projects If the proposed projects are mutually exclusive, there will exist more IOSs. For example, if there are 5 projects, A, B, C, D, and E, of which A and B are mutually exclusive, so there exist 2 IOSs, one is for A, C, D, E; the other is for B, C, D, E.
42. Advanced Topics in Capital Budgeting (3) Illustration of IOS (a) Example & Data Suppose that the financial analysts in Carson Food proposed 6 potential investment projects with an equal risk to Carson board as follows, and the board wanted to decide which will be financial feasible to implementation. Potential Investment Projects Year A* B* C D E F 0 ($100,000) ($100,000) ($500,000) ($200,000) ($300,000) ($100,000) 1 10,000 90,000 190,000 52,800 98,800 58,781 2 70,000 60,000 190,000 52,800 98,800 58,781 3 100,000 10,000 190,000 52,800 98,800 - 4 - - 190,000 52,800 98,800 - 5 - - 190,000 52,800 - - 6 - - 190,000 52,800 - - IRR 27% 38.5% 30.2% 15.2% 12% 11.5% PBP(year) 2.2 1.2 2.6 3.8 3.0 1.7 * Project A and project B are mutually exclusive.
43. 厦门大学吴世农 (b) IOS for Carson’s Proposed Projects Note that the project A and project B are mutually exclusive, there exist two IOSs, one is for A, C, D, E, and F, the other is for B, C, D, E, and F. We define that Dotted Line for first set includes A, C, D, E, and F; Solid Line for first set includes B, C, D, E, and F. Thus, the two IOSs are presented in the following figure: IRR/MCC(%) 40 B 30 C A 20 D 10 E F $0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000
44. Advanced Topics in Capital Budgeting 3. MCC-IOS for an Optimal Capital Budgeting (1) Why MCC vs. IOS Will Produce an Optimal Capital Budgeting? (a) How to Determine an Optimal Capital Budgeting? An optimal capital budgeting can be obtained by combining Carson Food’s MCCs and its IOSs together, in other words, put the MCCs and IOSs into one figure with the same scale for the optimal capital budgeting. (b) Why can the Combination Produce an Optimal Capital Structure? The result by the combination of the MCCs and IOSs will reveals (1) which projects will produce positive or negative NPV; (2) the cost of capital used in the capital budgeting process is actually determined by the intersection of the IOS and MCC schedules. If this intersection rate is used, the firm will make a correct decision to reject/accept the projects, and the amount of capital sources and that of capital uses will be optimal, otherwise, not optimal.
45. 厦门大学吴世农 (2) An Optimal Capital Budgeting for Carson Food Now combining Carson Food’s MCCs and its IOSs together, put them into one figure with the same scale, the result will reveals (1) which projects will produce positive or negative NPV; (2) the cost of capital used in the capital budgeting process is actually determined by the intersection of the IOS and MCC schedules. If this intersection rate is used, the firm will make a correct decision to reject/accept the projects, and the amount of capital sources and that of capital uses will be optimal, otherwise, not optimal. IRR/MCC(%) 40 B=38.5% C=30.2% 30 A=27% 20 D=15% MCC2 =12.63% MCC3 =12.993% MCC1 =12% MCC 10 E=12% F=11.5% IOS $0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000
46. Advanced Topics in Capital Budgeting (a) Some Conclusions Conclusion 1: Projects E and F should be rejected because they have to be financed with capital at the cost of capital 12.63% and 12.993%, which are greater than E and F’s IRRs. At these costs, both projects E and F will produce negative NPVs. Conclusion 2: Carson should accept either projects A, C, and D or projects B, C, and D. Both of their IRRs are larger than MCCs, and NPVs are positive. Conclusion 3: Projects B-C-D are more optimal than project A-C-D. Outlay IRR Outlay IRR B 100,000 38.5% A 100,000 27.2% C 500,000 30.2% C 500,000 30.2% D 200,000 15.2% D 200,000 15.2% Total=800,000 Mean=27.4874% Total=800,000 Mean=26.075%
47. Capital Budgeting for Special ProjectsVIII. Special Projects——New Challenges to Capital Budgeting 1. Three Types of Special Projects (1) Leasing Project（租赁项目） A firm may lease equipment and building to obtain the use of facilities rather than buying them when the firm wants to set up a new product line. In 1984 in USA, 20% of new capital equipment acquired by businesses was financed via Lease Arrangement. A typical lease project comes from airline companies, they lease most of their air-planes to offer transportation services. (2) BOT (Build-Operate-Transfer) Project（特许权项目） Government (or firms) may authorise a firm to invest in and run a project (build and operate) for n years, and then requires the firm to transfer the project to the government (or the firms). By doing so, the firm authorised by the government (or the firms) will pay for capital expenditure,
48. 厦门大学吴世农 construct the project, and run the project for n years after the construction is finished. As contracted years are over, the project will be returned to the government (or the firms). (a) Applications of BOT (a-1): Infrastructure Highways: Power Stations Bridges Water Supplying System Tunnels Telecommunication System Airports (a-2): Private Projects in Industries (b) Typical Cases of BOT Abroad: England-France Tunnel under English Channel Australia South-North Highway Home: Sa-jiao B-Power Station in Guang Dong, China Lai-Bin B-Power Station in Guang Xi, China
49. Capital Budgeting for Special Projects (3) ABS (Asset-Backed Securization) Project（资产支撑证券化项目） The process of converting loans into marketable securities is known as Securization. When the mortgage loans, consumer loans, commercial loans, and leases are securized, the pools of assets backing a particular issue are transferred to a Grantor Trust, a passive entity that issues the securities that are purchased by investors. Virtually, any debt obligation with regularly scheduled principal and interest payments can be securized: auto-loans, credit card receivables, vehicle and equipment leases, consumer loans, and other obligations. (a) ABS with Financial Assets (a-1): Mortgage-Backed Security (MBS): Collateralized Mortgage Obligations (CMOs) Real Estate Mortgage Investment Conduits (REMICs)
50. 厦门大学吴世农 (a-2): Collateralized Auto-Receivable Security (CARS) (b) ABS with Investment Projects Recently, the process of ABS is applied to investment projects, particularly for some projects’ NCFs are relatively stable. In other word, the pool of investment project’s loans will be converted into marketable securities, and the security’s holders will regularly receive principal and interest from the project’s future income. Of course, the process of ABS with investment projects also needs Grantor Trust.
51. Capital Budgeting for Special Projects 2. New Challenges (1) Estimation on Costs of Capitals More Complicated Financial instruments such as options, convertible bonds, warrants diversify the sources of capitals, but increase a difficulty in estimating costs of capitals; (2) Project Uncertainty & Risk Financial Innovation increases more uncertainty of cash flows, and thus increase risk of the project; (3) Estimation on Cash Flows More Complicated Payment Arrangements create new problems in estimating cash flows, which are also related to terms and clauses in legal contracts; (4) Evaluation Methods Capital Budgeting Techniques are not applicable to solve some special projects based on a financial innovation, or in some cases, need some adjustments.
52. 厦门大学吴世农 3. Characteristics (1) Legal/Financial Contract Special projects in nature are legal/financial contracts, which are signed by firms or people involved in these project. For example, a firm (lessee) wants to lease equipment has to sign a leasing contract with lessor. (2) Mutual or Multi-sides Since that special projects usually are legal / financial contracts signed by firms/people involving in these projects. In most cases, there are at least two sides involving these project, while sometimes there are more than two sides. (3) Evaluation for Mutual/Multi-sides Firms/people who participate in these projects (debt-holders and stockholders, lessees and lessors, authority and firms/people being authorised, trustees, and so on) are concerned about the financial/economic efficiency of a project, but from their points of views. For example, a leasing project are evaluated by both lessee(承租人) and lessor(出租人),
53. Capital Budgeting for Special Projects the lessee must determine if leasing an asset is less costly than buying that asset; the lessor must decide if the leasing payments are able to produce a target rate of return. VX. Capital Budgeting for a Lease Project 1. Types of Leases (1) Sale-and -Leaseback（售后租赁） A firm that owns physical assets (such as land, equipment, and building) sells the properties to a financial institution (such as bank or insurance companies), and simultaneously executes an arrangement to lease the properties back for a specific period under specific terms.
54. 厦门大学吴世农 (2) Operating Lease（经营租赁） Operating lease, also called service lease, which a lessor not only leases its property to a lessee, but also provides both financing and maintenance. (a) Maintenance & Service Usually, an operating lease calls for lessor（出租人）to maintain and service the leased equipment, and the cost of maintenance is included into the lease payments for each period. (b) Lease Payments and Cost of Leased property It is common that the payments under lease contract will not sufficiently equal to full cost of the leased property covered operating lease. (c) Cancellation Clause An operating lease arrangement frequently contains a cancellation term, which provides the lessee（承租人）the right to cancel the lease and returns the property before the expiration of the basic lease arrangement. This clauses provides lessee some flexibility to return the property if it is obsolete due to technological innovation or no longer need.
55. Capital Budgeting for Special Projects (d) Leasing Period A lease contract is usually signed for a period considerably less than the expected economic life of the leased property because the lessor expects to recover all costs either by subsequent renewal payments through leases to other lessees or current lessees, or by selling the leased property. (3) Capital Lease （资本租赁） Capital lease, also called financial lease, involves three parts, lessee, lessor, and manufacturer. It is a lease in which a lessee (a firm) that will use the equipment selects the specific items it requires, and then negotiate the price and delivery terms with the equipment manufacturer. After that, the lessee will arrange a lessor to buy the equipment from the manufacturer. Finally, when the equipment is purchased, the lessee (user firm) will simultaneously executes an arrangement to lease the equipment from the lessor. (a) Maintenance & Service For a financial lease, no maintenance service is provided to a lessee by a lessor;
56. 厦门大学吴世农 (b) Lease Payments and Cost of Leased property For a financial lease, a lessor will receive rental payments equal to full price of the leased equipment plus a return on investment; (c) Cancellation Clause A financial lease is not cancelable; (d) Tax & Insurance Cost In a financial lease, the lessee generally pays the property taxes and insurance cost on the leased equipment; (e) Similarity to and Difference from Sale-and-Leaseback A financial lease is almost the same to sale-and-leaseback in terms of procedure, but two major differences exist, one is that the leased equipment is new, anther is that the lessor buys it from a manufacturers or distributors instead of from the user-lessee.
57. Capital Budgeting for Special Projects 2. Effects of Lease Project (1) Income Tax Effect For a lessee, the full amount of annual rental payment is a tax-deductible expense for income tax purpose provided by IRS (Internal Revenue Service, USA) agrees to treat the payments as a tax-deductible expense instead of “a way to sell the equipment”. To prevent some problem raised from lease such as fast payments for tax deduction (faster than annual depreciation in ACRS class life will result in more tax-savings by a present value), IRS treats a lease arrangement to be a sale instead of true lease by two rules: (a) Leasing Period and Payment to Price The total lease payments are made over a relatively shorter period and approximate to the price of the property; (b) Economic Life of Leased Property The lessee may continue to use the property over the reminder of its life for relatively nominal rental payments.
58. 厦门大学吴世农 (2) Financial Statement Effect Leasing is often called “off balance sheet financing”（表外融资）. This is because lease payments are shown as operating expenses on a firm’s income statement, but under certain conditions, neither the leased assets nor the leased liabilities on the firm’s balance sheet. It is important to understand that a lessee has pay regular rentals, and thus a lease will increase its fixed charges, but no effect on its debt’s ratio occurs. If the lessee fails to pay the regular rental payments, it may be faced with financial bankruptcy. To correct this problem, FASB#13 stated “capitalizing the lease”, which required that, for an unqualified report, firms that involve in financial leases must restate their balance sheet to report the leased asset as a fixed asset and the present value of future lease payments as a debt. 3. Capital Budgeting for Lessee and Lessor (1) Capital Budgeting for Lessee (a) Lease or Purchase? A lease, from a lessee’s point of view, will be compared with a purchase by borrowing, by retained earnings, or by selling new equity.
59. Capital Budgeting for Special Projects For simplicity, a lease is usually compared an alternative—— Borrow to Buy (BTB). Consequently, at least two alternative projects have to be evaluated and then compared with each other. (b) NPV and IRR For a lease project, NPV procedure is still a effective to determine whether a lessee should acquire an equipment by a lease or by BTB, however, there is a major difference: it compare lease with BTB by Present value of Net Cash Outflows, thus a Net Advantage of Lease is created as follows to judge which alternative is better: NAL= Present Value of Leasing Costs-Present Value of BTB Costs In addition, IRR from a lessee’s viewpoint, a lease also can be evaluated by IRR, which is the equivalent loan cost implied in lease contract. The decision rule by IRR is stated as follows, If IRR is less than the straight loan’s interest rate on the lease, from the lessee’s position, is acceptable; If IRR is larger than the straight loan’s interest rate on the lease, from the lessee’s position, is unacceptable.
60. 厦门大学吴世农 (2) Capital Budgeting for Lessor (a) Will be a Lease Profitable? Will a lease provides higher rate of return equal to a target rate set by a lessor? The target rate of return can be either rate of return on bonds or other investment opportunities. (b) NPV and IRR For a lease, a lessor will receive rental payment each period, after deduct depreciation, expenses and taxes from it, there exist a net earning. Thus, NCF for each period can be determined for figuring out NPV. In addition, IRR can be determined as well, we can compare IRR with after-tax rate of return on a bond or on other investment opportunities. If IRR is greater than the after-tax rate of return on a bond, the lease contract is acceptable, otherwise, unacceptable.
61. Capital Budgeting for Special ProjectsCase Discussion: A Lease Project of Porter Electronic Company PEC plans to acquire equipment with a cost of $11,111,111, including costs on delivery and installment, investment tax credit (ITC) is 10%, thus PRC will actually only pay $10 million for the equipment. PEC have some alternatives to acquire the equipment, one is to use BTB with a 10% loan (K=10%) to be amortized over 5years. The economic life of the equipment is estimated to be 5 years, by the end of fifth year, the net salvage value is $715000. If the operation is profitable, PEC will continue to use the equipment. If not, the equipment will be sold and the firm will receive net $715000 after taxes because the equipment is PEC’s own property. Alternatively, PEC can lease the equipment for 5 years at an annual rental charge of $2791670, but the lessor will own that equipment upon the expiration of the lease. PEC plans to continue to use the equipment after the lease has expired, so a purchase arrangement has to be negotiate with lessor.。It is reasonable to assume that PEC will have the option to buy the equipment at a cost equal to the net salvage value, $715000.
62. 厦门大学吴世农 The lease contract stipulates that the lessor is responsible for maintaining the leased equipment, it has to bear the cost of maintenance, which will be performed by the equipment manufacturer at a fixed contract rate of $500000 per year, payable at the end of year. Note that in the case of BTB, the maintenance cost has to be paid by PEC. The leased equipment falls in the ACRS 5-year class life, and PEC’s effective tax rate is 40%. In addition, the depreciable basis for the leased equipment is equal to the investment outlay ($11111111) minus 50% of the ITC. The lease payment schedule is essentially established by potential lessors, PEC can accept it, reject it or negotiate with the lessors. Which is the best choice for PEC? Requirements: (1) How many alternatives involving in this lease project for the lessee and the lessor? (2) Is the lease project acceptable, from the lessee’s viewpoint and from the lessor’s viewpoint, respectively? (3) In negotiation, what actions may the lessee or the lessor prepare for?
63. Capital Budgeting for Special Projects (1) Evaluation by Lessee (a) Evaluation on BTB (a-1): Analysis on Loan’s Annual Payment Amortized over 5 Years Payment=$10 million/PVIFA(10%, 5years) = $10 million/3.7908=$2638000 per year (a-2): Decompose the Payment Note that the payment consists of annual interest and principal, Year 1: Interest Paid = $10 million(10%)=$1000000 Principal Paid = 2638000-1000000=$1638000 Year 2: Interest Paid = (10 Million-1638000)10%=$836200 Principal paid = 2638000-836200=$1802000 Year 3: Interest Paid = $10 million-1638000-180200)10%=$656000 Principal Paid = 2638000-656000=$198200 By doing so, we can compute for year 4 and year 5.
64. 厦门大学吴世农 (a-3): Determine the Annual Tax-deductible Expenses of BTO Tax-deductible Expenses = Maintenance Cost + Depreciation + Interest Expenses * Maintenance Cost for Each Year-End = $500000 * Depreciation Cost for Each Year-End by the ARCS Year 1 2 3 4 5 Depreciation 1583000 2322000 2217000 2217000 2217000 * Interest Expenses = Paid Interest Each Year Year 1 2 3 4 5 Paid Interest 1000000 836000 656000 458000 240000 (a-4): Determine Annual Tax Savings Annual Tax Savings = Tax-deductible Expenses 40% (a-5): Determine Cash Outflows for Each Year COF = Payment for Loan + Maintenance Cost - Tax Savings = (Principal + Interest) + Maintenance Cost - Tax Savings
65. Capital Budgeting for Special Projects PEC’s Net Cash Outflows for the 5-Year Lease Project (Thousands of $) Year Payment Interest Principal Rest Maintenance Depreciation TDE T-Saving COF 1 2638 1000 1638 8362 500 1583 3083 1233 1905 2 2638 836 1802 6560 500 2322 3658 1463 1675 3 2638 656 1982 4578 500 2217 3373 1349 1789 4 2638 458 1982 2180 500 2217 3175 1270 1868 5 2638 240 2398 0 500 2217 2957 1183 1955 Total 13190 3190 10000 10566 (a-6): Determine Present Value of BTB’s Costs PV Costs of BTB = Annual COF PVIF(6%, t) (t=1,2,3,4,5) = $7,731,000 Note that 6% is used as a discounted rate because all the cash flows are on after-tax basis, thus, Discounted Rate After Tax= K(1-T)=10% (1-40%)=6%
66. 厦门大学吴世农 (b) Evaluation on the Lease Arrangement (b-1): Determine Lease’s Annual Payment Lease’s Annual Payment Before Tax = $2791670 Lease’s Annual Payment After Tax = Lease’s Annual Payment Before Tax-Tax Savings = $2791670(1-40%)=$1675002 (b-3): Determine Net Salvage Value at the End of Year 5 If PRC wants to continue its operation with the the leased equipment, it will has to pay the lessor $715000 for the continuous use of the equipment, thus $715000 can be treated as the last amount of lease cost. (b-4):Determine Present Value of Lease’s Costs PV Costs of Lease = Annual Lease’s Payment After Tax PVIF(6%, t) = $759000 Year 1 2 3 4 5 Lease Costs 1675000 1675000 1675000 1675000 1675000+715000 PVIF(6%, t) 0.9434 0.8900 0.8396 0.7921 0.7473
67. Capital Budgeting for Special Projects (c) Final Evaluation (c-1): Compare PV Cost of BTB With PV Cost of Lease Net Advantage to Lease (NAL) = 7731000-7590000=$141000 (c-2): Obviously, NAL is positive, and the lease arrangement is acceptable! (2) Evaluation by Lessor (a) Revenue for Lessor Annual Lease Payment = $2792000 (b) Maintenance Annual Maintenance Cost= $500000 (c) Depreciation Year 1 2 3 4 5 Depreciation 1583000 2322000 2217000 2217000 2217000 (d) Taxes Annual Tax = (Lease Payment-Maintenance Cost-Depreciation)T (e) Determine NCFi
68. 厦门大学吴世农 NCFs for Lessor (Thousands of $) Year Lease Payment Maintenance Depreciation Taxes NCFi PVIF(4%,t) PV of NCFi 1 2792 500 1583 425 1867 0.9615 1795 2 2792 500 2232 -18 2310 0.9246 2136 3 2792 500 2217 45 2247 0.8890 1988 4 2792 500 2217 45 2247 0.8548 1921 5 2792 500 2217 45 2247 0.8219 1847 5 715 0.8219 588 Total 13960 2500 10556 542 11633 - 10285 (f) Determine NPV for Lessor NPV=10285000-10000000=$285000>0 Obviously, the lessor must accept the lease arrangement because of a positive NPV, $285000.
69. Capital Budgeting for Special ProjectsVXI. Evaluation of BOT Project 1. Characteristics of Return and Risk of BOT (1) Return and Risk Return from BOT will go up gradually year by year for a period of time as the project is in operation, and then, going down as the project’s economic life is terminated. Risk of BOT will go down as the project is in operation, and then finally diminishing to zero. (2) Relation between Return and Risk Return & Risk Return Risk Economic Life t* T*
70. 厦门大学吴世农 2. Operating Procedure for BOT Firm BOT’s Project Firm Debt-holders Shareholders Designers & Banks & Constructors BOT Project Insurance Suppliers Buyers HN’s Partnership Firm Host Nation
71. Capital Budgeting for Special Projects 3. Important Clauses in BOT Contract (1) For Host-country (a) National treatment and policy preference (if there is) for foreign investment must be applied to BOT’s project company; (b) Permissions are given to BOT’s project company to import the equipment and materials the BOT project needs, and export its products or services if necessary; (c) Allow BOT’s project owns the independent right to adjust (increase / decrease) the prices of products or services which the BOT project generates. However, the adjustment of price should be, in general, consistent with the government’s economic policy. (d) If necessary, the government will agree to buy a certain amount of BOT project’s products/services at a certain price; (e) Responsible for help BOT’s project if it meets problems of social security, water- and fire- protection and rescue, natural disasters and other emergent events, and the land is free in some cases;
72. 厦门大学吴世农 (f) Provides land, water supply, electricity supply, road and other infrastructure if necessary; (g) Provides necessary conditions and conveniences for BOT’s project company to remit earnings to foreign country to pay interests, dividends and return principals in term of foreign currency; (2) For BOT’s Project Company (a) The BOT’s project company should complete project’s construction in schedule; (b) Responsible to transfer all properties of the BOT’s project to the host country; (c) Construct and Operate the project under supervisions of the host country or its representatives; (e) Allow the host country’s firms as sub-contracted firm to join the construction; (f) Under the same condition, prefer to use transportation, leasing, banking and insurance services of the host country;
73. Capital Budgeting for Special Projects (g) Train a number of managers and engineers for the host country; (h) Pay the host country a certain amount of “earnest money” in advance for default. 4. Evaluate BOT Project (1) Legal Evaluation (a) Qualifications of BOT’s Applicants (b) Construction Plans and Activity (c) Project’s Product/Service Price Formation and Adjustment (d) Financing from Shareholders and Debt-holders (e) BOT Project’s Ownership Structure (f) Payment Arrangements to Debt-holders and Shareholders (h) Others
74. 厦门大学吴世农 (2) Financial/Economic Evaluation (a) Total Investment (Initial Outlay) and Sources of the Capitals (b) Cost Components and Price Formation (c) Project’s Supply and Market Demand (d) Costs of Various Capitals (e) NCFs before and after Transferring the Project (f) Net Earnings and Profitability (g) Risk on Foreign Exchange (h) Risk on Inflation (i) Time of Operation, Transferring, and Residual Value of the Project (j) Payback, NPV and IRR before and after Transferring the Project (k) Supports to Local Economic Growth (GNP, Employment, Taxes, Efficient Usage of Natural Resources, Living Condition, etc.)
75. Capital Budgeting for Special Projects (3) Others (a) Supports from the Host Nation; (b) Supports from the Investor’s Nation; (c) Political & Social Stability in both Host Nation and Investor’s Nation.

下载需要 2 积分 [ 获取积分 ]

服务器/托管费、人工审核、技术维护等都需要很多费用，请您支持香当网的发展

下载PPT

高级投资项目管理和经济效益评价

该用户的其他文档

相关PPT

相关文档