investment appraisal fundamentsldd.sdd.ppt

Fundamentals of
Investment Appraisal
Martina Röhrich
ISBN: 978-3-11-034718-0
© 2014 Oldenbourg Wissenschaftsverlag GmbH, München
Abbildungsübersicht / List of Figures
Tabellenübersicht / List of Tables

Fundamentals of Investment Appraisal, Martina Röhrich ISBN 978-3-11-034718-0
2
Table 1-1 Characteristics of the methods of investment appraisal

3
Figure 2-1 Average capital employed

4
Table 2-1 Comparison of alternatives by the cost comparison method

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Table 2-2 Comparison of alternatives by the cost comparison method with salvage values

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Table 2-3 Basic data for the calculation of critical values

7
Figure 2-2 Critical activity quantity by the cost comparison method

8
Table 2-4 Basic data for the new vehicle

9
Table 2-5 Relevant costs with regard to the replacement decision

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Table 2-6 Replacement decision by the cost comparison method

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Table 2-7 Check for the replacement decision by the cost comparison method

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Table 2-8 Replacement decision by the cost comparison method with salvage values

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Table 2-9 Comparison of alternatives by the profit comparison method

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Table 2-10 Comparison of alternatives by the profit comparison method with salvage values

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Table 2-11 Decision about the replacement of the HL Securitas by the profit comparison method

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Table 2-12 Decision about the replacement of the BMC Minerva by the profit comparison method

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Table 2-13 Comparison of alternatives by the accounting rate of return method

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Table 2-14 Comparison of alternatives by the accounting rate of return method with salvage values

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Table 2-15 Replacement decision by the accounting rate of return method

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Table 2-16 Calculation of non-discounting payback through average annual cash flow

21
Table 2-17 Calculation of non-discounting payback through average annual profit

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Table 2-18 Calculation of non-discounting payback through average annual cash flow with salvage values

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Table 2-19 Calculation of non-discounting payback through average annual profit with salvage values

24
Table 2-20 Replacement decision by the non-discounting payback

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Table 2-21 Results from the non-discounting methods of investment appraisal

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Table 3-1 Basic example of the time value of money

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Table 3-2 Cost comparison for the basic example

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Table 3-3 Symbols for the discounting methods of investment appraisal (Continued)

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Table 3-3 Symbols for the discounting methods of investment appraisal

30
Table 3-4 Investment’s payments within the example

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Table 3-5 Calculation of present values within the example

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Figure 3-1 Time line illustration of a net present value

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Table 3-6 Complete financial plan, investment of € 70,000 on the capital market

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Table 3-7 Complete financial plan, transaction of the investment, financing with equity

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Table 3-8 Complete financial plan, Transaction of the investment, financing with debt at 100 % and repayment at the end of
the time period in a single sum

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Table 3-9 Complete financial plan, Transaction of the investment, financing with debt at 100 % and repayment at the best
possible rate

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Table 3-10 Calculation of the net present value for Investment 1

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Table 3-11 Calculation of the net present value for Investment 2

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Table 3-12 Net present value method and differential investments

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Figure 3-2 Net present value profile

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Table 3-13 Basic data for the comparison of alternatives by the net present value method

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Table 3-14 Calculation of current cash outflow for the comparison of alternatives by the net present value method

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Table 3-15 Calculation of net present values for the comparison of alternatives without cash inflow

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Table 3-16 Calculation of net present values for the comparison of alternatives with cash inflows

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Table 3-17 Basic data for the CSA Toutatis

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Table 3-18 Marginal cash flows of new car purchase

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Table 3-19 Equivalent annuity as annualised net present value

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Table 3-20 Comparison of Alternatives by the annuity method

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Table 3-21 Calculation of equivalent annuities for the replacement decision

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Table 3-22 Basic data for graphical and arithmetic approximation of the internal rate of return

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Figure 3-3 Graphical estimate of the internal rate of return

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Table 3-23 Calculation of internal rates of return by Excel

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Table 3-24 Illustration of investment desirability ranking conflicts

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Figure 3-4 Net present value profiles for the HL Securitas and the BMC Minerva

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Table 3-25 Calculation of the discounted cumulative cash flow of the HL Securitas

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Table 3-26 Calculation of the discounted cumulative cash flow of the BMC Minerva

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Table 3-27 Results from non-discounting and discounting payback method

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Table 4-1: Correction of the input variables

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Table 4-2 Initial data for the comparison of alternatives

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Table 4-3 Net present values for the comparison of alternatives using the correction method

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Table 4-4 Data basis for the comparison of alternatives

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Table 4-5: Rise of cash flow by 10 % within the sensitivity analysis

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Table 4-6: Reduction of cash flow by 10 % within the sensitivity analysis

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Table 4-7: Synopsis of the results of the band width analysis

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Table 4-8 Identifying the BMC Minerva’s sensitive input variables

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Table 4-9 Definition of the uncertain input variables

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Table 4-10 Probability distributions of the uncertain input variables

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Table 4-11 Allocation of random numbers to the uncertain input data

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Figure 4-1 Monte Carlo Simulation to incorporate probability distributions of cash flows and economic life

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Table 4-12 Generated random numbers for the uncertain input data

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Table 4-13 Net present values for the iterations

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Table 4-14: Results of the risk analysis

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Figure 4-2 Risk profile

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Table 4-15 Initial data for the comparison of alternatives using the fixed planning

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Figure 4-3 Probability tree

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Table 4-16 Current value of cash flows from the investment depending on the state of the economy

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Table 4-17 Discounted cash flows from the investment project depending on the state of the economy

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Figure 4-4 Decision tree – fixed planning

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Table 4-18 Net present values and weighted net present values in the outcome nodes of period 2 using the fixed planning
approach

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Table 4-19 Discounted cash flows from the investment project depending on the state of the economy

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Figure 4-5 Decision tree – flexible planning

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Table 4-20 Explanation of the way to the results in period 2

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Table 4-21 Net present values in the final nodes in period 2 within the flexible planning approach

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Table 4-22 Overview of the decision nodes in period 1

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Table 4-23 Calculation of the expected net present value for the action ‘no reaction’

86
Table 4-24 Calculation of the expected net present value for the action ‘advertising’

87
Table 4-25 Summary of the expected net present values for the decision nodes in period 1

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Table 4-26 Summary of useful decisions in the decision nodes of period 1

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Table 4-27 Probability distributions of the uncertain input variable

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Table 4-28 Allocation of random numbers to the uncertain input variable

91
Table 4-29 Generated random numbers for the uncertain input variable ‘sales revenues’

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Table 5-1: Calculation of the net present value without and with taxes

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Table 5-2 Derivation of the project’s after tax cash flow

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Table 5-3 Basic data for the calculation of the net present values without taxes

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Table 5-4 Calculation of net present values after tax

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Table 5-5 Comparison of alternatives based on net present values after tax

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Table 5-6 Basic data for the calculation of the net present values without inflation

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Table 5-7 Basic data to set up a complete financial plan

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Table 5-8 Complete financial plan for the BMC Minerva at a discount rate of 5 %

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Table 5-9 Complete financial plan for the BMC Minerva with a debit interest rate of 6 % and a credit interest rate of 5 %

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Table 5-10 Contributions of the assessment criterion ‘Eco Friendliness’

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Table 5-11 Partial values of benefit for the alternatives under consideration

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Table 5-12 Total values for the alternatives considered

104
Table 5-13 Basic data for the macroeconomic net present value method

105
Table 5-14 Calculation of the macroeconomic net present value

106
Future Value Factor

107
Annuity Future Value Factor

108
Sinking Fund Factor

109
Annual Equivalent Factor

110
Present Value Factor

111
Annuity Present Value Factor

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