Corporate Finance: Instructor\'s Manual Applied Corporate Finance

Aswath Damodaran 221 The sources of capital rationing... Cause Number of firms Percent of total Debt limit imposed by outside ag ...

Aswath Damodaran 222 An Alternative to IRR with Capital Rationing ! The problem with the NPV rule, when there is capital rationi ...

Aswath Damodaran 223 Case 3 : NPV versus IRR Cash Flow Investment $ 5 , 000 , 000 $ 10 , 000 , 000 Project A Cash Flow Investmen ...

Aswath Damodaran 224 Why the difference? These projects are of the same scale. Both the NPV and IRR use time-weighted cash flows ...

Aswath Damodaran 225 NPV, IRR and the Reinvestment Rate Assumption ! The NPV rule assumes that intermediate cash flows on the pr ...

Aswath Damodaran 226 Solution to Reinvestment Rate Problem Cash Flow Investment $ 300 $^400 $^500 $^600 <$ 1000 > $ 300 ( ...

Aswath Damodaran 227 Why NPV and IRR may differ.. ! A project can have only one NPV, whereas it can have more than one IRR. ! Th ...

Aswath Damodaran 228 Case 4 : NPV and Project Life Project A - $ 1500 $ 350 $ 350 $ 350 $ 350 $ 350 - $ 1000 $ 400 $ 400 $ 400 $ ...

Aswath Damodaran 229 Choosing Between Mutually Exclusive Projects ! The net present values of mutually exclusive projects with d ...

Aswath Damodaran 230 Solution 1 : Project Replication Project A: Replicated - $ 1500 $ 350 $ 350 $ 350 $ 350 $ 350 $^350 $^350 $ ...

Aswath Damodaran 231 Solution 2 : Equivalent Annuities ! Equivalent Annuity for 5 - year project = $ 442 * PV(A, 12 %, 5 years) ...

Aswath Damodaran 232 What would you choose as your investment tool? ! Given the advantages/disadvantages outlined for each of th ...

Aswath Damodaran 233 What firms actually use .. Decision Rule % of Firms using as primary decision rule in 1976 1986 IRR 53. 6 % ...

Aswath Damodaran 234 The Disney Theme Park: The Risks of International Expansion ! The cash flows on the Bangkok Disney park wil ...

Aswath Damodaran 235 Should there be a risk premium for foreign projects? ! The exchange rate risk should be diversifiable risk ...

Aswath Damodaran 236 Domestic versus international expansion ! The analysis was done in dollars. Would the conclusions have been ...

Aswath Damodaran 237 The ‘‘Consistency Rule” for Cash Flows ! The cash flows on a project and the discount rate used should be d ...

Aswath Damodaran 238 Dealing with Inflation ! In our analysis, we used nominal dollars and Bt. Would the NPV have been different ...

Aswath Damodaran 239 Disney Theme Park: Project Analysis in Baht ! The inflation rates were assumed to be 10 % in Thailand and 2 ...

Aswath Damodaran 240 Disney Theme Park: Thai Baht NPV NPV = 31 , 542 Bt/ 42. 09 Bt = $ 749 Million NPV is equal to NPV in dollar ...