Capital Budgeting-II

nv ayoff roflle
20
0
20
40
60
80
100
120
0 3 10 13 20 23
N

V

(
I
N
k
)
DISCCUN1 kA1L ()
l88 19
LAk CASnILCWS
(INk)
0 (200)
1 30
2 100
3 130
nnepLanne 8ule
W nnepL Lhe pro[enL when l88 k
W 8e[enL Lhe pro[enL when l88 k
W May annepL Lhe pro[enL when l88 k
W ln nase of lndependenL pro[enLs l88 and nv
rules wlll glve Lhe same resulLs lf Lhe flrm has
no shorLage of funds
valuaLlon of l88 meLhod
,LkI1S
W DnderLakes Llme value of
money
W DnderLakes all nash flows
over Lhe llfe of Lhe pro[enL
W ln llne wlLh SWM ob[enLlve
DL,LkI1S
W MulLlple dlsnounL raLes
W MuLually exnluslve pro[enLs
wlLh dlfferenL llves under
fund nonsLraln
W sLlmaLlon of nash flows
W uoesnL obey value
addlLlvlLy prlnnlple
onvenLlonal vs nononvenLlonal ash llow
W nonvenLlonal nash flow has only one lnlLlal
nash ouLflow followed by a serles of nash
lnflows ( + + + +)
W nonnonvenLlonal nash flow nomprlses of
mulLlple nash lnflows ouLflows ( + + + +
)
roblems wlLh l88
W 1 lnvesLlng or llnannlng
W 2 MulLlple l88
W 3 roblem of Snale
W 4 1lmlng of nash flow
1 lnvesLlng or llnannlng?
kCILC1 A kCILC1 8 kCILC1 C
?8 SPlLCW SPlLCW SPlLCW
0 100 ln8 100 ln8 100 ln8
1 130 ln8 130ln8 230 ln8
2 132 ln8
l88 30 30 10 20
nnepL lf markeL
raLe
30 30 10 buL 20
llnannlng or
lnvesLlng
lnvesLlng llnannlng MlxLure
10
0
10
20
30
40
0 3 10 13 20 23 30 33 40
N

V

(
I
N
k
)
D|scount kate ()
ro[ect A
40
30
20
10
0
10
0 3 10 13 20 23 30 33 40
N

V

(

I
N
k

)
D|scount kate ( )
ro[ect 8
23
2
13
1
03
0
03
0 3 10 13 20 23
N

V

(

I
N
k

)
D|scount kate ( )
ro[ect C
eneral 8ules for l88 nv
CASn ILCW NC CI Ikk
ACCL1ANCL kULL
WI1n Ikk
ACCL1ANCL kULL
WI1n NV
1
sL
nash flow ls v
and resL +v
1
nnepL lf l88 r
8e[enL lf l88 r
nnepL lf nv 0
8e[enL lf nv 0
1
sL
nash flow ls +v
and resL v
1
nnepL lf l88 r
8e[enL lf l88 r
nnepL lf nv 0
8e[enL lf nv 0
fLer Lhe 1
sL
nash
flow some are v
some are + v
1 or more Lhan one no valld l88
nnepL lf nv 0
8e[enL lf nv 0
2 MulLlple l88
ll nashflows whlnh exhlblL Lwo nhanges of slgns
( + + + ) have mulLlple l88
23
2
13
1
03
0
03
0 3 10 13 20 23
N

V

(

I
N
k

)
D|scount kate ( )
ro[ect C
kCILC1 C
?8 SPlLCW
0 100 ln8
1 230 ln8
2 132 ln8
3 roblem of Snale
Whlnh pro[enL wlll you nhoose?
LAk CASn ILCW
8C!1 8C!1 8
0 1000 100000
1 1300 120000
nv [ 10 364 908
l88 30 20
4 1lmlng of ashllow
600
400
200
0
200
400
600
800
1000
0 3 10 13 20 23 30
N

V

(
I
N
k
)
D|scount kate ()
ro[enL
ro[enL 8
nv ln8 276
rossover raLe 10
roflLablllLy lndex(l)
nnepLanne 8ule
W 1he followlng are Lhe l annepLanne rules
W nnepL Lhe pro[enL when l ls greaLer Lhan one
l 1
W 8e[enL Lhe pro[enL when l ls less Lhan one
l 1
W May annepL Lhe pro[enL when l ls equal Lo one
l 1
W 1he pro[enL wlLh poslLlve nv wlll have l greaLer
Lhan one l less Lhan means LhaL Lhe pro[enL's
nv ls negaLlve
valuaLlon of l
,LkI1S
W DnderLakes Llme value of
money
DL,LkI1S
W sLlmaLlon of nash flows
W sLlmaLlon of dlsnounL raLe
ulsnounLed aybank erlod
Modlfled l88