Reading 44: Capital Budgeting LOSf习题精选

In theory, a positive NPV project should provide an increase in the value of a firm's shares.

NPV of new capital equipment = $50 million - $30 million = $20 million
Value of company prior to equipment purchase = 8,000,000 × $28.00 = $224,000,000
Value of company after new equipment project = $224 million + $20 million = $244 million
Price per share after new equipment project = $244 million / 8 million = $30.50

Note that in reality, changes in stock prices result from changes in expectations more than changes in NPV.

Despite the theoretical superiority of the NPV and IRR methods for determining and ranking project profitability, surveys of corporate managers show that a variety of methods are used. Firms that use the NPV and IRR methods tend to be larger, publicly-traded, companies.

Companies that favor discounted cash flow capital budgeting techniques such as NPV and IRR over payback period or other non-DCF capital budgeting techniques tend to have the following characteristics:

• Location: European firms tend to favor payback period.
• Size: Smaller firms tend to favor payback period.
• Ownership: Private firms tend to favor payback period.
• Management education: The more highly educated a firm’s management, the more likely it is to use a DCF capital budgeting technique as its primary tool.