Chương 5: So sánh tiêu chí :

1. a. Payback period is simply the accounting break-even point of a series of cash flows. To actually
compute the payback period, it is assumed that any cash flow occurring during a given period is
realized continuously throughout the period, and not at a single point in time. The payback is
then the point in time for the series of cash flows when the initial cash outlays are fully
recovered. Given some predetermined cutoff for the payback period, the decision rule is to
accept projects that pay back before this cutoff, and reject projects that take longer to pay back.
The worst problem associated with the payback period is that it ignores the time value of
money. In addition, the selection of a hurdle point for the payback period is an arbitrary
exercise that lacks any steadfast rule or method. The payback period is biased towards short-
term projects; it fully ignores any cash flows that occur after the cutoff point.

b. The IRR is the discount rate that causes the NPV of a series of cash flows to be identically zero.
IRR can thus be interpreted as a financial break-even rate of return; at the IRR discount rate, the
net value of the project is zero. The acceptance and rejection criteria are:

If C0 < 0 and all future cash flows are positive, accept the project if the internal rate of
return is greater than or equal to the discount rate.
If C0 < 0 and all future cash flows are positive, reject the project if the internal rate of
return is less than the discount rate.
If C0 > 0 and all future cash flows are negative, accept the project if the internal rate of
return is less than or equal to the discount rate.
If C0 > 0 and all future cash flows are negative, reject the project if the internal rate of
return is greater than the discount rate.
 IRR is the discount rate that causes NPV for a series of cash flows to be zero. NPV is
preferred in all situations to IRR; IRR can lead to ambiguous results if there are non-
conventional cash flows, and it also may ambiguously rank some mutually exclusive
projects. However, for stand- alone projects with conventional cash flows, IRR and NPV
are interchangeable techniques.

c. The profitability index is the present value of cash inflows relative to the project cost. As
such, it is a benefit/cost ratio, providing a measure of the relative profitability of a
project. The profitability index decision rule is to accept projects with a PI greater than
one, and to reject projects with a PI less than one. The profitability index can be expressed
as: PI = (NPV + cost)/cost = 1 + (NPV/cost). If a firm has a basket of positive NPV
projects and is subject to capital rationing, PI may provide a good ranking measure of the
projects, indicating the “bang for the buck” of each particular project.

d. NPV is simply the present value of a project’s cash flows, including the initial outlay.
NPV specifically measures, after considering the time value of money, the net increase or
decrease in firm wealth due to the project. The decision rule is to accept projects that have
a positive NPV, and reject projects with a negative NPV. NPV is superior to the other
methods of analysis presented in the text because it has no serious flaws. The method
unambiguously ranks mutually exclusive projects, and it can differentiate between
projects of different scale and time horizon. The only drawback to NPV is that it relies on
cash flow and discount rate values that are often estimates and thus not certain, but this is
a problem shared by the other performance criteria as well. A project with NPV = $2,500
implies that the total shareholder wealth of the firm will increase by $2,500 if the project
is accepted.

2. The single biggest difficulty, by far, is coming up with reliable cash flow estimates.
Determining an appropriate discount rate is also not a simple task. These issues are discussed in
greater depth in the next several chapters. The payback approach is probably the simplest,
followed by the AAR, but even these require revenue and cost projections. The discounted
cash flow measures (discounted payback, NPV, IRR, and profitability index) are really only
slightly more difficult in practice.

3. Yes, they are. Such entities generally need to allocate available capital efficiently, just as for-
profits do. However, it is frequently the case that the “revenues” from not-for-profit ventures
are not tangible. For example, charitable giving has real opportunity costs, but the benefits are
generally hard to measure. To the extent that benefits are measurable, the question of an
appropriate required return remains. Payback rules are commonly used in such cases. Finally,
realistic cost/benefit analysis along the lines indicated should definitely be used by the U.S.
government and would go a long way toward balancing the budget!
Chương 7:

1. Forecasting risk is the risk that a poor decision is made because of errors in projected cash
flows. The danger is greatest with a new product because the cash flows are probably harder
to predict.

2. With a sensitivity analysis, one variable is examined over a broad range of values. With a
scenario analysis, all variables are examined for a limited range of values.

3. From the shareholder perspective, the financial break-even point is the most important. A
project can exceed the accounting and cash break-even points but still be below the financial
 break-even point. This causes a reduction in shareholder (your) wealth.
4. Traditional NPV analysis is often too conservative because it ignores profitable options such as
the ability to expand the project if it is profitable, or abandon the project if it is unprofitable.
The option to alter a project when it has already been accepted has a value, which increases
the NPV of the project.
5. Sensitivity analysis can determine how the financial break-even point changes when some
factors (such as fixed costs, variable costs, or revenue) change.
Chương 13:
1. No. The cost of capital depends on the risk of the project, not the source of the money.
2. Interest expense is tax-deductible. There is no difference between pretax and aftertax equity costs.

3. a. This only considers the dividend yield component of the required return on equity.
b. This is the current yield only, not the promised yield to maturity. In addition, it is based on
the book value of the liability, and it ignores taxes.
c. Equity is inherently riskier than debt (except, perhaps, in the unusual case where a firm’s
assets have a negative beta). For this reason, the cost of equity exceeds the cost of debt. If
taxes are considered in this case, it can be seen that at reasonable tax rates, the cost of
equity does exceed the cost of debt.
Chương 18 :
1. The WACC is based on a target debt level while the APV is based on the amount of debt.

2. FTE uses levered cash flow and other methods use unlevered cash flow.

3. The WACC method does not explicitly include the interest cash flows, but it does implicitly
include the interest cost in the WACC. If he insists that the interest payments are explicitly
shown, you should use the FTE method.

4. You can estimate the unlevered beta from a levered beta. The unlevered beta is the beta of the
assets of the firm; as such, it is a measure of the business risk. Note that the unlevered beta will
always be lower than the levered beta (assuming the betas are positive). The difference is due to
the leverage of the company. Thus, the second risk factor measured by a levered beta is the
financial risk of the company.

Chương 21:

1. Some key differences are: (1) Lease payments are fully tax-deductible, but only the interest
portion of the loan is; (2) The lessee does not own the asset and cannot depreciate it for tax
purposes; (3) In the event of a default, the lessor cannot force bankruptcy; and (4) The lessee
does not obtain title to the asset at the end of the lease (absent some additional arrangement).
2. The less profitable one because leasing provides, among other things, a mechanism for
transferring tax benefits from entities that value them less to entities that value them more.

3. . Leasing is a form of secured borrowing. It reduces a firm’s cost of capital only if it is cheaper
than other forms of secured borrowing. The reduction of uncertainty is not particularly
relevant; what matters is the NAL.
b. The statement is not always true. For example, a lease often requires an advance lease
payment or security deposit and may be implicitly secured by other assets of the firm.
c. Leasing would probably not disappear, since it does reduce the uncertainty about salvage
value and the transactions costs of transferring ownership. However, the use of leasing
would be greatly reduced.
4. The lessee may not be able to take advantage of the depreciation tax shield and may not be able
to obtain favorable lease arrangements for “passing on” the tax shield benefits. The lessee might
also need the cash flow from the sale to meet immediate needs, but will be able to meet the
lease obligation cash flows in the future.