tailieunhanh - Lecture Investment analysis & portfolio management - Chapter 8: Investment analysis

After studying this chapter you will be able to understand: Net present value – basic considerations, discounted cash flows, cash money in - cash money out, incremental cash flows, Inflation effects, Tax effect on cash flows, Opportunity cash flows, Working capital changes impact, Inflation, Entire life of investment, Tax depreciation shield (tax effect). | Investment Analysis Lecture: 8 Course Code: MBF702 Outline -RECAP - NPV – Considerations continued - IRR - Comparison of NPV and IRR - Comparing investment appraisals methods RECAP NET PRESENT VALUE – Basic considerations Discounted cash flows CASH MONEY IN - CASH MONEY OUT Incremental cash flows Inflation effects Tax effect on cash flows Opportunity cash flows Working capital changes impact Inflation Entire life of investment Tax depreciation shield (tax effect) 4 Treat inflation consistently Make sure that inflation is accounted for in a consistent manner. Either: State cash flows in terms of actual dollars, at the time the cash flows are received. These are nominal cash flows Or 2. State cash flows in terms of dollars, at the time the projections are made. These are real cash flows. If cash flows are in nominal terms, use nominal discount rates to discount the cash flows. If cash flows are in real terms use real discount rates to discount the cash flows. 4 5 Treat inflation . | Investment Analysis Lecture: 8 Course Code: MBF702 Outline -RECAP - NPV – Considerations continued - IRR - Comparison of NPV and IRR - Comparing investment appraisals methods RECAP NET PRESENT VALUE – Basic considerations Discounted cash flows CASH MONEY IN - CASH MONEY OUT Incremental cash flows Inflation effects Tax effect on cash flows Opportunity cash flows Working capital changes impact Inflation Entire life of investment Tax depreciation shield (tax effect) 4 Treat inflation consistently Make sure that inflation is accounted for in a consistent manner. Either: State cash flows in terms of actual dollars, at the time the cash flows are received. These are nominal cash flows Or 2. State cash flows in terms of dollars, at the time the projections are made. These are real cash flows. If cash flows are in nominal terms, use nominal discount rates to discount the cash flows. If cash flows are in real terms use real discount rates to discount the cash flows. 4 5 Treat inflation consistently Example: There is 3% anticipated inflation per year. The real price of Honda Accords is expected to remain constant into the foreseeable future at $20,000. What will the nominal price be after 5 years? Nominal Price = (Real Price) ()5 = $23, 5 6 Treat inflation consistently IN GENERAL TERMS: CONVERTING NOMINAL CASH FLOWS TO REAL CASH FLOWS, AND NOMINAL INTEREST RATES TO REAL INTEREST RATES. If Y(t) is the nominal cash flow in period t, in is the annual anticipated inflation rate, then the real cash flow, y(t) is: y(t) = Y(t) and Y(t) = y(t)(1+in)t (1+in)t 6 7 Treat inflation consistently ( 1 + i ) ( 1 + r ) = (1 + n ) where i : inflation rate r : real discount rate n : nominal discount rate Don't assume that all cash flows will be affected equally by inflation. BEWARE OF THE APPROXIMATION: R = r + in This works only if r times in is small. 7 Different discount rates for different periods 9 Remember taxes 1. Calculate all cash flows after taxes 2. Include non-cash .

• Tài chính doanh nghiệp
• Investment analysis
• Portfolio management
• Investment management
• Investment theory
• Investment environment
• Investment analysis
• Investment companies
• Time value of money
• Characteristics of investment
• Investment portfolio management
• Investment analysis & portfolio management
• Investment background
• Developments in investment theory
• Management of common stocks