财务管理基础 13版 _pp14
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《财务管理基础学习》课件
反映企业在某一特定日期 的财务状况，包括资产、 负债和所有者权益。
利润表
反映企业在一定会计期间 的经营成果，包括收入、 费用和利润。
现金流量表
反映企业一定时期内现金 流入和流出的状况。
财务分析方法
比率分析法
通过比较不同会计期间或 同行业之间的财务比率， 来分析企业的财务状况和 经营成果。
趋势分析法
业整体的影响。
转移策略
通过购买保险、外包等方式， 将财务风险转移给其他机构或
个人。
2023
PART 05
财务控制与审计
REPORTING
内部控制的重要性
1 2
保证财务信息的真实性和完整性
有效的内部控制系统可以防止财务欺诈和舞弊行 为，确保财务信息的准确性和可靠性。
提升企业经营效率
健全的内部控制制度可以帮助企业优化内部流程 ，提高经营效率，降低不必要的成本和风险。
财务预算的编制流程
财务预算的编制通常包括目标确定、预算计划、预算执行和预算调 整等步骤。
财务预算的编制方法
常见的财务预算编制方法有固定预算、弹性预算、滚动预算和零基 预算等。
投资决策的方法
投资决策的考虑因素
01
投资决策需要考虑的因素包括投资回报率、风险评估、资金成
本和项目可行性等。
投资决策的方法
02
财务合规与法规遵循
合规性要求
确保企业的财务活动符合相关法律法规、行业标准和监管要求。
法规遵循策略
制定并执行符合法律法规的财务管理策略，降低企业面临的法律风 险。
合规性审查
定期进行财务合规性审查，及时发现并纠正不合规行为，确保企业 持续合规经营。
2023
PART 06
利润表
反映企业在一定会计期间 的经营成果，包括收入、 费用和利润。
现金流量表
反映企业一定时期内现金 流入和流出的状况。
财务分析方法
比率分析法
通过比较不同会计期间或 同行业之间的财务比率， 来分析企业的财务状况和 经营成果。
趋势分析法
业整体的影响。
转移策略
通过购买保险、外包等方式， 将财务风险转移给其他机构或
个人。
2023
PART 05
财务控制与审计
REPORTING
内部控制的重要性
1 2
保证财务信息的真实性和完整性
有效的内部控制系统可以防止财务欺诈和舞弊行 为，确保财务信息的准确性和可靠性。
提升企业经营效率
健全的内部控制制度可以帮助企业优化内部流程 ，提高经营效率，降低不必要的成本和风险。
财务预算的编制流程
财务预算的编制通常包括目标确定、预算计划、预算执行和预算调 整等步骤。
财务预算的编制方法
常见的财务预算编制方法有固定预算、弹性预算、滚动预算和零基 预算等。
投资决策的方法
投资决策的考虑因素
01
投资决策需要考虑的因素包括投资回报率、风险评估、资金成
本和项目可行性等。
投资决策的方法
02
财务合规与法规遵循
合规性要求
确保企业的财务活动符合相关法律法规、行业标准和监管要求。
法规遵循策略
制定并执行符合法律法规的财务管理策略，降低企业面临的法律风 险。
合规性审查
定期进行财务合规性审查，及时发现并纠正不合规行为，确保企业 持续合规经营。
2023
PART 06
《财务管理基础第13版》相关章节答案ppt课件
ation Limited 2008
Chapter 1: The Role of Financial Management
ANSWERS TO QUESTIONS
1. With an objective of maximizing shareholder wealth, capital will tend to be allocated to the most productive investment opportunities on a risk-adjusted return basis. Other decisions will also be made to maximize efficiency. If all firms do this, productivity will be heightened and the economy will realize higher real growth. There will be a greater level of overall economic want satisfaction. Presumably people overall will benefit, but this depends in part on the redistribution of income and wealth via taxation and social programs. In other words, the economic pie will grow larger and everybody should be better off if there is no reslicing. With reslicing, it is possible some people will be worse off, but that is the result of a governmental change in redistribution. It is not due to the objective function of corporations. 2. Maximizing earnings is a nonfunctional objective for the following reasons: a. Earnings is a time vector. Unless one time vector of earnings clearly dominates all other time vectors, it is impossible to select the vector that will maximize earnings. b. Each time vector of earning possesses a risk characteristic. Maximizing expected earnings ignores the risk parameter. c. Earnings can be increased by selling stock and buying treasury bills. Earnings will continue to increase since stock does not require out-of-pocket costs. d. The impact of dividend policies is ignored. If all earnings are retained, future earnings are increased. However, stock prices may decrease as a result of adverse reaction to the absence of dividends. Maximizing wealth takes into account earnings, the timing and risk of these earnings, and the dividend policy of the firm. 3. Financial management is concerned with the acquisition, financing, and management of assets with some overall goal in mind. Thus, the function of financial management can be broken down into three major decision areas: the investment, financing, and asset management decisions. 4. Yes, zero accounting profit while the firm establishes market position is consistent with the maximization of wealth objective. Other investments where short-run profits are sacrificed for the long-run also are possible. 5. The goal of the firm gives the financial manager an objective function to maximize. He/she can judge the value (efficiency) of any financial decision by its impact on that goal. Without such a goal, the manager would be "at sea" in that he/she would have no objective criterion to guide his/her actions. 6. The financial manager is involved in the acquisition, financing, and management of assets. These three functional areas are all interrelated (e.g., a decision to acquire an asset necessitates the financing and management of that asset, whereas financing and management costs affect the decision to invest). 7. If managers have sizable stock positions in the company, they will have a greater understanding for the valuation of the company. Moreover, they may have a greater incentive to maximize shareholder wealth than they would in the absence of stock holdings. However, to the extent persons have not only human capital but also most of their financial
Chapter 1: The Role of Financial Management
ANSWERS TO QUESTIONS
1. With an objective of maximizing shareholder wealth, capital will tend to be allocated to the most productive investment opportunities on a risk-adjusted return basis. Other decisions will also be made to maximize efficiency. If all firms do this, productivity will be heightened and the economy will realize higher real growth. There will be a greater level of overall economic want satisfaction. Presumably people overall will benefit, but this depends in part on the redistribution of income and wealth via taxation and social programs. In other words, the economic pie will grow larger and everybody should be better off if there is no reslicing. With reslicing, it is possible some people will be worse off, but that is the result of a governmental change in redistribution. It is not due to the objective function of corporations. 2. Maximizing earnings is a nonfunctional objective for the following reasons: a. Earnings is a time vector. Unless one time vector of earnings clearly dominates all other time vectors, it is impossible to select the vector that will maximize earnings. b. Each time vector of earning possesses a risk characteristic. Maximizing expected earnings ignores the risk parameter. c. Earnings can be increased by selling stock and buying treasury bills. Earnings will continue to increase since stock does not require out-of-pocket costs. d. The impact of dividend policies is ignored. If all earnings are retained, future earnings are increased. However, stock prices may decrease as a result of adverse reaction to the absence of dividends. Maximizing wealth takes into account earnings, the timing and risk of these earnings, and the dividend policy of the firm. 3. Financial management is concerned with the acquisition, financing, and management of assets with some overall goal in mind. Thus, the function of financial management can be broken down into three major decision areas: the investment, financing, and asset management decisions. 4. Yes, zero accounting profit while the firm establishes market position is consistent with the maximization of wealth objective. Other investments where short-run profits are sacrificed for the long-run also are possible. 5. The goal of the firm gives the financial manager an objective function to maximize. He/she can judge the value (efficiency) of any financial decision by its impact on that goal. Without such a goal, the manager would be "at sea" in that he/she would have no objective criterion to guide his/her actions. 6. The financial manager is involved in the acquisition, financing, and management of assets. These three functional areas are all interrelated (e.g., a decision to acquire an asset necessitates the financing and management of that asset, whereas financing and management costs affect the decision to invest). 7. If managers have sizable stock positions in the company, they will have a greater understanding for the valuation of the company. Moreover, they may have a greater incentive to maximize shareholder wealth than they would in the absence of stock holdings. However, to the extent persons have not only human capital but also most of their financial
财务管理基础PPT课件
4. Discuss the advantages and disadvantages of issuing/buying the three different types of long-term securities from the perspective of both the issuer and investor.
• A negative-pledge clause precludes the corporation from pledging any of its assets (not already pledged) to other creditors.
20.6
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Types of Long-Term Debt Instruments
• Liquidity varies depending on investor sentiments.
• Junk bonds were used frequently in the 1980s as a means of financing leveraged buyouts (LBOs).
• A negative-pledge clause precludes the corporation from pledging any of its assets (not already pledged) to other creditors.
20.6
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Types of Long-Term Debt Instruments
• Liquidity varies depending on investor sentiments.
• Junk bonds were used frequently in the 1980s as a means of financing leveraged buyouts (LBOs).
财务会计学(第13版)PPT第1章
•5
1.1 企业财务会计的性质
1.1.1 对企业会计信息(accounting information)的需求
•企业所有者 债权人
•供应商 •顾 客
•经营者
企业
•职工
•政府
1)企业的财力是否充裕，是否足以偿还其债务。 2)企业的获利情况怎样。 3)是否应该贷给企业更多的资金。 4)是否应该继续保持对企业的债权(如是否转让公 司的债券)。
•23
1.3 财务会计的基本前提
• 1.3.1 会计主体 (accounting entity) • 1.3.2 持续经营(going concern) • 1.3.3 会计期间 (accounting period) • 1.3.4 货币计量 • 1.3.5 权责发生制 (accrued basis)
•10
1.1 企业财务会计的性质 1.1.2 企业财务会计的特点
(4)从工作程序的约束依据来看，财务会计要受外在 统一的会计规范(如会计准则)的约束。 (5)从会计程序与方法来看，财务会计有一套比较科 学、统一、定型的会计处理程序与方法，如填制凭证、 登记账簿、编制报表等。
•11
1.1 企业财务会计的性质 1.1.3 经济环境对财务会计的影响
际会计准则趋同的能够独立实施的企业会计准则体系。
•18
1.2 企业会计准则(accounting standards) 1.2.2 我国的企业会计准则
2014年上半年又先后发布了《企业会计准则第39号— 我 —公允价值计量》、《企业会计准则第40号——合营安 国 排》和《企业会计准则第41号——在其他主体中权益的 准 披露》,并对部分会计准则进行了修订。 则 发 2017年3月财政部发布修订后的《企业会计准则第22 展 号——金融工具确认和计量》《企业会计准则第23号— 历 —金融资产转移》和《企业会计准则第24号——套期会 史 计》。
财务管理基础工业出版社13版Chap013_PPT
1-9
Betas for Five-Year Period (Ending January 2006)
1-10
Risk and the Capital Budgeting Process
• Informed investors and managers need to decide between:
1-11
Risk-Adjusted Discount Rate
• Using different discount rates for proposals with different risk levels
– Investment with normal amount of risk may be discounted at the cost of capital – Investments carrying greater than normal risk will be discounted at a higher rate and so on
– Investments that produce ‘certain’ returns – Investments that produce an expected value of return, apart from having a high coefficient of variation
1-17
Capital Budgeting Analysis
1-18
Capital Budgeting Decision Adjusted for Risk
1-19
Simulation Models
• Help in dealing with uncertainties involved in forecasting the outcome of capital budgeting projects or other decisions
财务管理基础 financial management 清华大学出版社pp14
14.12
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Variance of Year 1 Cash Flows (Proposal B)
Probability Distribution of Year 1 Cash Flows
Proposal A
0.40
Probability
0.25
0.05
–3,000
14.5
1,000
5,000
9,000
13,000
Cash Flow ($)
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Probability Distribution of Year 1 Cash Flows
Proposal B
0.40
Probability
0.25
0.05 –3,000 1,000 5,000 9,000 13,000
Cash Flow ($)
14.11 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
财务管理基础工业出版社13版第三章共30页文档
distortion
1-1
Ratio Analysis
• Financial ratios
– Used to weigh and evaluate the operating performance of a firm
– Used to compare performance record as against similar firms in the industry
1-16
Debt Utilization Ratios (cont’d)
• Fixed charge coverage measures the firm’s ability to meet the fixed obligations
• Interest payments alone are not considered
• Debt utilization ratios
– Estimates the overall debt position of the firm – Evaluates in the light of asset base and earning
power
1-6
Financial Statement for Ratio Analysis
– Measures the speed at which the firm is turning over accounts receivable
1-5
Types of Ratios (cont’d)
• Liquidity ratios
– Emphasizes the firm’s ability to pay off shortterm obligations as and when due
1-1
Ratio Analysis
• Financial ratios
– Used to weigh and evaluate the operating performance of a firm
– Used to compare performance record as against similar firms in the industry
1-16
Debt Utilization Ratios (cont’d)
• Fixed charge coverage measures the firm’s ability to meet the fixed obligations
• Interest payments alone are not considered
• Debt utilization ratios
– Estimates the overall debt position of the firm – Evaluates in the light of asset base and earning
power
1-6
Financial Statement for Ratio Analysis
– Measures the speed at which the firm is turning over accounts receivable
1-5
Types of Ratios (cont’d)
• Liquidity ratios
– Emphasizes the firm’s ability to pay off shortterm obligations as and when due
财务管理基础工业出版社13版第三章
1-8
Profitability Ratios
1-9
DuPont System of Analysis
• A satisfactory return on assets might be derived through:
– A high profit margin – A rapid turnover of assets (generating more
1-4
Ratios and their Classification (cont’d)
C. Liquidity ratios
9. Current ratio 10. Quick ratio
D. Debt utilization ratios
11. Debt to total assets 12. Times interest earned 13. Fixed charge coverage
1-14
Asset Utilization Ratios (cont’d)
1-15
Liquidity Ratios
1-16
Debt Utilization Ratios
• Measures the prudence of the debt management policies of the firm
1-11
DuPont Analysis
1-12
Return of Wal-Mart versus Macy’s using the Du Pont method of analysis, 2007
1-13
Asset Utilization Ratios
• These ratios relate the balance sheet to the income statement
Profitability Ratios
1-9
DuPont System of Analysis
• A satisfactory return on assets might be derived through:
– A high profit margin – A rapid turnover of assets (generating more
1-4
Ratios and their Classification (cont’d)
C. Liquidity ratios
9. Current ratio 10. Quick ratio
D. Debt utilization ratios
11. Debt to total assets 12. Times interest earned 13. Fixed charge coverage
1-14
Asset Utilization Ratios (cont’d)
1-15
Liquidity Ratios
1-16
Debt Utilization Ratios
• Measures the prudence of the debt management policies of the firm
1-11
DuPont Analysis
1-12
Return of Wal-Mart versus Macy’s using the Du Pont method of analysis, 2007
1-13
Asset Utilization Ratios
• These ratios relate the balance sheet to the income statement
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14.4
Probability 0.05 0.25 0.40 0.25 0.05
Cash Flow $ –3,000 1,000 5,000 9,000 13,000
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Summary of Proposal A
The standard deviation = SQRT (14,400,000) = $3,795
The expected cash flow = $5,000
Coefficient of Variation (CV) = $3,795 / $5,000 = 0.759
(CF1)(P1)
$ –150 250 2,000 2,250 650 $5,000
14.7
(CF1 – CF1)2(P1)
(–3,000 – 5,000)2 (0.05) ( 1,000 – 5,000)2 (0.25) ( 5,000 – 5,000)2 (0.40) ( 9,000 – 5,000)2 (0.25) (13,000 – 5,000)2 (0.05)
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Variance of Year 1 Cash Flows (Proposal A)
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Variance of Year 1 Cash Flows (Proposal B)
• The Problem of Project Risk
• Total Project Risk
• Contribution to Total Firm Risk: Firm-Portfolio Approach
• Managerial Options
14.3 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
14.6
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Variance of Year 1 Cash Flows (Proposal A)
(CF1)(P1) (CF1 – CF1)2*(P1)
$ –150 250 2,000 2,250 650 $5,000
14.8
3,200,000 4,000,000 0 4,000,000 3,200,000 14,400,000
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
(CF1)(P1) (CF1 – CF1)2(P1)
$ –50 500 2,000 2,000 550 $5,000
14.14
1,800,000 2,250,000 0 2,250,000 1,800,000 8,100,000
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Chapter 14
Risk and Managerial (Real) Options in Capital Budgeting
14.1 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
(CF1)(P1) (CF1 – CF1)2(P1)
$ –50 500 2,000 2,000 550 $5,000
14.13
(–1,000 – 5,000)2 (0.05) ( 2,000 – 5,000)2 (0.25) ( 5,000 – 5,000)2 (0.40) ( 8,000 – 5,000)2 (0.25) (11,000 – 5,000)2 (0.05)
14.12
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Variance of Year 1 Cash Flows (Proposal B)
Expected Value of Year 1 Cash Flows (Proposal A)
CF1
$ –3,000 1,000 5,000 9,000 13,000
P1
0.05 0.25 0.40 0.25 0.05 S=1.00
(CF1)(P1)
$ –150 250 2,000 2,250 650 CF1=$5,000
14.10
Probability 0.05 0.25 0.40 0.25 0.05
Cash Flow $ –1,000 2,000 5,000 8,000 11,000
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
An Illustration of Total Risk (Discrete Distribution)
ANNUAL CASH FLOWS: YEAR 1 PROPOSAL A
State Deep Recession Mild Recession Normal Minor Boom Major Boom
An Illustration of Total Risk (Discrete Distribution)
ANNUAL CASH FLOWS: YEAR 1 PROPOSAL B
State Deep Recession Mild Recession Normal Minor Boom Major Boom
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Risk and Managerial Options in Capital Budgeting
Expected Value of Year 1 Cash Flows (Proposal B)
CF1
$ –1,000 2,000 5,000 8,000 11,000
P1
0.05 0.25 0.40 0.25 0.05 S=1.00
(CF1)(P1)
$ –50 500 2,000 2,000 550 CF1=$5,000
CV is a measure of relative risk and is the ratio of standard deviation to the mean of the distribution.
14.9 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Probability Distribution of Year 1 Cash Flows
Proposal A
0.40
Probability
0.25
0.05
–3,000
14.5
1,000
5,000
9,000
13,000
Cash Flow ($)
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Probability 0.05 0.25 0.40 0.25 0.05
Cash Flow $ –3,000 1,000 5,000 9,000 13,000
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Summary of Proposal A
The standard deviation = SQRT (14,400,000) = $3,795
The expected cash flow = $5,000
Coefficient of Variation (CV) = $3,795 / $5,000 = 0.759
(CF1)(P1)
$ –150 250 2,000 2,250 650 $5,000
14.7
(CF1 – CF1)2(P1)
(–3,000 – 5,000)2 (0.05) ( 1,000 – 5,000)2 (0.25) ( 5,000 – 5,000)2 (0.40) ( 9,000 – 5,000)2 (0.25) (13,000 – 5,000)2 (0.05)
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Variance of Year 1 Cash Flows (Proposal A)
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Variance of Year 1 Cash Flows (Proposal B)
• The Problem of Project Risk
• Total Project Risk
• Contribution to Total Firm Risk: Firm-Portfolio Approach
• Managerial Options
14.3 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
14.6
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Variance of Year 1 Cash Flows (Proposal A)
(CF1)(P1) (CF1 – CF1)2*(P1)
$ –150 250 2,000 2,250 650 $5,000
14.8
3,200,000 4,000,000 0 4,000,000 3,200,000 14,400,000
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
(CF1)(P1) (CF1 – CF1)2(P1)
$ –50 500 2,000 2,000 550 $5,000
14.14
1,800,000 2,250,000 0 2,250,000 1,800,000 8,100,000
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Chapter 14
Risk and Managerial (Real) Options in Capital Budgeting
14.1 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
(CF1)(P1) (CF1 – CF1)2(P1)
$ –50 500 2,000 2,000 550 $5,000
14.13
(–1,000 – 5,000)2 (0.05) ( 2,000 – 5,000)2 (0.25) ( 5,000 – 5,000)2 (0.40) ( 8,000 – 5,000)2 (0.25) (11,000 – 5,000)2 (0.05)
14.12
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Variance of Year 1 Cash Flows (Proposal B)
Expected Value of Year 1 Cash Flows (Proposal A)
CF1
$ –3,000 1,000 5,000 9,000 13,000
P1
0.05 0.25 0.40 0.25 0.05 S=1.00
(CF1)(P1)
$ –150 250 2,000 2,250 650 CF1=$5,000
14.10
Probability 0.05 0.25 0.40 0.25 0.05
Cash Flow $ –1,000 2,000 5,000 8,000 11,000
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
An Illustration of Total Risk (Discrete Distribution)
ANNUAL CASH FLOWS: YEAR 1 PROPOSAL A
State Deep Recession Mild Recession Normal Minor Boom Major Boom
An Illustration of Total Risk (Discrete Distribution)
ANNUAL CASH FLOWS: YEAR 1 PROPOSAL B
State Deep Recession Mild Recession Normal Minor Boom Major Boom
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Risk and Managerial Options in Capital Budgeting
Expected Value of Year 1 Cash Flows (Proposal B)
CF1
$ –1,000 2,000 5,000 8,000 11,000
P1
0.05 0.25 0.40 0.25 0.05 S=1.00
(CF1)(P1)
$ –50 500 2,000 2,000 550 CF1=$5,000
CV is a measure of relative risk and is the ratio of standard deviation to the mean of the distribution.
14.9 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Probability Distribution of Year 1 Cash Flows
Proposal A
0.40
Probability
0.25
0.05
–3,000
14.5
1,000
5,000
9,000
13,000
Cash Flow ($)
Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.