Alan Cring Productions in association with Emergent Light Studio presents
the Illinois State Collegiate Compendium Academic Lectures in Business and Economics.
This is Business Finance, FIL 341 for Autumn Semester 2024.
Today, extensions of capital budgeting decision making.
And I'm going to do a couple of different, I'm going to pull up a spreadsheet that I've already shown you.
And I've added a little bit to it. I've talked about it. I mentioned it last time, but I've gotten it sophisticated up now.
And then I'm going to show you another worksheet that will be relevant for next week, our last week of class.
But first, a quick look at the numbers.
And Yahoo has decided that it's going to change its format because obviously everyone was screaming for them not to have important information across the top.
So as miserable as this is, we've got, it is definitely a bare day.
And you can see that it is, it's consistently across the big markets.
Dow is down about four-tenths of a percent. So is the S&P 500.
The Nasdaq isn't down as much, but the Russell 2000 is down too.
So that consistency gives us that clear indication that this is a sour day.
And as you can see from the news, that we have a bit of a concern now because we have a couple of inflation indicators that are warning, flashing warning.
And so that may put the Fed on a track to not cut the discount rate as it had planned to near the end of the year.
Now the challenge here is that the last time the fellow who was the president in 2017 to 2021,
the last time he was in office, he was threatening to fire the Federal Reserve Board of Governors,
which he can't do, but it was still kind of rattled them if they didn't keep cutting, keep interest rates low.
Well, that's a real problem now because if we really do have a little spark or an ember of inflation, we need to kill it and kill it very quickly.
And so I would imagine that the Fed is going to hold off on cutting the discount rate at the end of the year at its final meeting of the FOMC,
simply because it may not have much of a chance to fight inflation starting next year, or at least it will have a lot of headwinds from the White House.
So we're going to have to fight it right now.
That's going to suppress the markets because the markets formed their expectations on the interest rates falling,
the discount rate being cut in December, and it's not going to be cut possibly.
And so the markets are on a little bit of a sour note on that.
Just before I get to a little more of that, crude oil is staying in that very tight trading range I was talking about on Monday.
It seems to be very comfortable there.
We are a wash in oil in the reserves on the high seas at the refineries and in the pipeline. It's just a very good supply of oil going into the Christmas season,
which is we want it to be for people driving to shopping malls, trucks driving stuff to stores and all that kind of good stuff.
Now, if we go over here and I'm looking, come on, we are not. Oh, I hate this layout.
Yes, I do.
Ten-year bond has eased up a little on its interest rates for the time being.
Now, that is on a buying. There's been buying of bonds.
It's not too much of a flight to quality, but there does have a little bit of a hint that equities are being sold
and the proceeds, at least some of them, are going to buy bonds, pushing the bond prices up, pushes the bond yields down.
So this may be a very minor flight to quality, waiting to see what happens next.
We do have a couple of other issues that are kind of playing in here.
We are getting more countries sending warning messages, open warning messages to the incoming administration.
Don't start a trade war. It will be a disaster, not just for your country, but for the world in general.
And so you've got small countries and large countries openly and behind in back channels saying, don't even try that.
Unfortunately, it's probably going to happen. And so the results are going to be as one would expect.
There we go. Why am I struggling here to find what I want?
Well, the FTSE is actually kind of surging this morning, or at least now it closes in just about 20 minutes, I think.
But it's been showing some signs of life, which is good news for London, not for us.
We need to. And this is just a mess the way they've got this set up now.
So I can't really tell what's your own next. Hansang.
I can't. This is I may have to go to another service from now on if Yahoo is going to be this kind of be pissy like this.
But I mean, right now, the markets are in a wait and see kind of attitude.
And we just got to sort of live with that for the time being, because we don't know what's coming next.
I'm curious to see how the VIX. The VIX should be calming down right now, but I'm not sure about that.
Yeah, well, yeah, it's a little bit. I mean, it's pretty much stable. The volatility is stable from where it was yesterday and all that.
As you can see, I'm kind of curious about what that drop that was a real hard drop in the vol and then it came back up again.
And sometimes that's like reading tea leaves. What does that mean? Does that tell us anything about what's about to happen?
Some people are really into that kind of stuff. But one way or the other, let me go on to the content here.
This shouldn't take too much time, but I do want to make sure that you know.
Remember, your capital budgeting decision making methods are payback and PV and internal rate of return.
Now, taking you over, let me show you a couple of files that you're going to want. And I've already shown these to you.
And this is sort of like just catching getting a running start here. We're going to go into your canvas folder.
I'm going to do things a little backwards here. I'm going to show you what the new one is that you will use next week.
And then I'll go back and spend more time on the other one. 240 for heaven's sakes.
341. Now, in your file folder, there's going to be two that we use today in your spreadsheets.
This one you've seen before, but I've added a little bit to it for your benefit. The MPV download.
Whoops, I don't want to do that. The MPV and IRR, it's the first one that you're going to want to use that I'm going to talk about.
This is the one we've been using. And I want to show you. No, good heavens, quit it.
Bond calculations. Download. No, that's not what I want. For heaven's sakes.
MPV and IRR. Wow. Okay, there we go. Don't know what I'm thinking here. Okay.
Now, I apparently did it twice there. Okay. Okay, now the net present value, just use this for quiz.
I'll have a quiz for you on Wednesday of next week and for the final exam. Just put the numbers in from the problem itself.
I can't emphasize this enough. Don't be a fighter pilot and read into the problem.
Anytime you see a math problem, you just find the numbers and get them out of the words and send the words packing.
And in this one, I'm going to give you either a five-year or a seven-year free cash flow.
Well, no, I'll give you a five-year. And this is all you have to do.
I'll give you a five-year, find the MPV, and I'll give you a five-year internal rate of return.
And I will also have you calculate a profitability index.
You should be able to clock these in easily, and this will give you the ability to know how to do this.
And you can keep these spreadsheets for other classes.
And if you get the idea of how I build the model, you can extend the number of years, whatever you want.
But this is how it's done.
Now, another one is, remember I told you about modified internal rate of return, MIRR.
That's here, too. Just, again, put in the numbers, put in the financing rate and the reinvestment rate,
and you'll get your answers out. We don't have any problems whatsoever.
So you can clean up these very easily.
Now, the one that I did here, I've built a payback period model.
Now, this will be good for up to six, seven, eight years.
And all you have to do is put in the free cash flows and your number of, first put in the number of project years.
I should say that. Put in the number of project years.
And in this case, you've got a five-year project.
Now, once you put in five years, it will populate the years.
Like, for example, watch what would happen if I put in six years.
It would populate six years on the years.
I figured out how I can do that without using a macro.
It's called the sequence function.
And it's really handy. I haven't used it much ever, and I got started using it, and it's very good.
But then you put in your free cash flows.
Let me...
And what it will do is everything else will be automatic.
And it will tell you the year and exact to the decimal year what the payback period of the project is.
So, for example, if I wanted to do, let's say I wanted to do a six-year project.
I could put in, let's say, a free cash flow of negative $500.
And we come in with $75 and then $150 and let's say $160.
Whoop, found the year right there.
I really don't have to put in any of the other data.
As soon as it hits payback, I don't even have to fill in the rest of it.
You can if you want, but there it is.
And this is just an automatic way to find payback period.
No sweat whatsoever on that.
Now, again, I have a crossover rate model.
Now, I will mention crossover rates.
The one... I'm sorry, mutual exclusive.
Well, this is kind of like the mutual exclusive projects.
This isn't really a crossover. This is mutual exclusive projects.
The problem with mutually exclusive projects is that oftentimes they don't have the same time period,
the same time frame.
So comparing them becomes more difficult because you can have a short project
which will have a high NPV because they're not taking very...
discounting very far out in the future.
But its IRR will kind of suck.
And then you'll have a longer term project which will have a lower NPV,
but its IRR, it's got a shallower slope.
So its IRR comes later.
So in other words, you'll have one project that is like that with the NPV and the discount rate.
And then you'll have another project that has a shallower slope.
See, at these low rates, I mean, it's obviously not as attractive as the steeper slope project.
But as you get to higher and higher discount rates, that shallower slope begins to shine through.
It stays positive to higher discount rates.
Ultimately, this flash in the pan will have a low internal rate of return,
but it has superior, at least before the crossover, it has superior NPVs.
And this is a problem, you see, because since a lot of companies, you know, like they use the IRR method,
they tend, these projects tend to get kind of rejected because they,
if you've got a hurdle right out here someplace, they're dead.
But on the other hand, if you're using NPV method, you will probably,
if you've got discount rates in here, then, discount rates in here,
then that very short project will be superior.
The big question is, what do you do?
Obviously, you could do both NPVs, and you can see for different interest rates,
okay, the IRR of this is here, the IRR of this is here.
So you notice that there's going to be a gray area in here
where this project is going to have a higher NPV than this project.
And so it's going to probably pretty much dominate the whole thing.
But if you were to use lower discount rates out in here, then that one's going to be your choice.
It's got a stronger NPV at low discount rates, okay?
So what we do sometimes when we look at mutually exclusive projects
is that we map out the free cash flows of each of the projects.
And then we look at one as the opportunity cost of the other.
So in the example that I've given you here, in this one,
you see that the opportunity cost of project B is project A.
So in other words, at the very beginning, project A has an initial investment of $30,000.
Project B has an initial investment of $40,000.
So if we go with project B, we spend $40,000, but we save $30,000.
So ultimately, in the crossover analysis, the mutually exclusive part of it is a negative $10,000.
Again, what we're looking at is project A as the opportunity cost of project B.
So in the second year, well, in the first year, project B pulls in $20,000.
You give up the $5,000 from project A to get that.
So the ultimate result is $15,000 for B as essentially the alternative to A.
Now you keep going, and I'll repeat this a couple of times.
If I'm running project B, I will pull in $12,000,
but that means that I give up the $8,000 from project A.
And then you just keep going with this, and you will see that as you go down the line,
it behaves as a switching cash flow problem.
So the internal rate of return is going to probably, if you do an internal rate of return,
you'd probably want to do an MIRR, modified internal rate of return.
But you can stick straight with the NPV, and you can see that the IRRs, if I do this,
the NPV of project A is at a discount rate of 5%.
The NPV of project A is on its own. It's $3,000.
The NPV of project B at 5% is $2,000.
Now the internal rate of return of project A is 8.75%.
The internal rate of return of project B is 7.96%.
Now, that could be the end of it. You could just say, okay, project B,
project A dominates project B, both on NPV and IRR.
So we could just say, screw it, project A.
However, if you do look over there at the A as the opportunity cost of B,
in other words, we're going to go with B. Let's say we go with B,
and we look at what happens if you consider A as its opportunity cost.
Remember we use a weighted average cost of capital of 5%,
and we use an reinvestment rate of 7% to get this.
See, this has to be an MIRR simply because it has this switch in cash flow side.
See, it switches once, twice, and then three times.
So you can't use a straight-up internal rate of return.
You have to look at it, a modified internal rate of return.
Now, if you look at it that way, and you say we have a whack of 5%,
reinvestment rate of 7%, do you see that B is actually a go
because it returns more than the cost of its capital.
Its cost of capital was the whack, 5%, but the project B,
saying, okay, we gave up project A for this, project B is a go
because it returns more than the cost of its capital, which was whack, 5%.
So this doesn't necessarily muddy the waters.
Most of the time, someone would just say project A because it has a higher NPV
and it has a higher IRR.
But if you look at it a little more closely, project B is actually the best project
because it pulls in more than it costs to create it.
Giving up project A, we get better than what we paid in for project B.
So that's why we do this kind of crossover, mutually exclusive kind of project analysis.
Now, there's another question that goes on here too.
Suppose that you have a situation where one project, let me do this.
Year 0, 1, 2, 3, 4, 5, 6.
In year 0, this one costs, let's say, negative $50.
This one costs negative $70.
And then in year 1, let's say $5, $10, $15, and then 20, 15,
and then with salvage value, 10 at the end.
Project B is, let's say, positive $20, positive $40, no, positive $30, and then positive $25.
The problem with just comparing these NPV and IRR is that you have a mismatch of years in this.
This one's going to kick the hell out of this one because it has, you can even see by the payback period,
it pops on the scene, brings in very large revenues, comparatively speaking,
and they are for only three years, so the present values of these are very strong
compared to the present values where this one finds its mojo out here.
So that's what's going on here.
We can't really compare them, NPV, IRR, right up front.
So we use a method that makes the number of years equivalent.
And in this case, what we're going to do is we're going to say we are going to turn Project B into a six-year project.
And the way we're going to do that is we're going to say, okay, we're going to do Project B twice.
So in other words, we're going to repeat Project B, call it Project B prime.
So then when this one is dying, we're going to start it back up again with negative $70,
and then we're going to get the same free cash flows again, 20, 30, and 25.
Oops, I didn't mean that.
I want to put those over here.
I'm sorry.
I want to put these 20, 30, and 25.
So ultimately, what we have is a project that does B plus B prime.
We have a project that runs $70, $20, $30, and then negative $45,
because it will be finishing up with $25, and we'll spend $70 to start it back up again,
and then 20, then 30, and then 25.
So in other words, we compare A to B repeated twice.
And that way, they have the equivalent number of years that they're running.
Now, obviously, this one for internal rate of return, we need to do an MIRR.
We have to do it, modified internal rate of return to get to do it.
But still, this is how we can make the two projects have equivalent years.
Now, you'd say, well, that was kind of cheating there,
because it had exactly, project B had exactly half the number of years of project A.
Well, that's fine.
We just do it.
We shift that up if it's four years, and you run that four years,
and you back that up so that it still comes out to be six years.
You just put it starting again wherever it will make a total of six years.
That's all you do with that.
Again, let me explain.
Let me repeat that.
All you do with this is let's say that this project was four years in duration.
What I would do is then shift this up.
Watch.
Let me do it this way.
Suppose that this one actually had four years of free cash flows, let's say $10 here.
All I do in a case like that is that...
Get the hell out of me.
All I do here is I just shift this up.
I would start again.
This is one, two, three, four, five.
If I start here, one, two, three, four, five.
I'd start here.
I would have negative 70, 20, 30, 25, and 10.
That, my B and B prime would be then negative 70, positive 20, negative 40, positive 45, positive 40, 25, and 10.
I just shifted up enough so that it cleared the combination of the projects ended in the same year as the one that was just one run of the project.
You just shifted up to get it to align properly.
Now, I won't ask anything like this on a quiz or a test.
This is just sort of like twisting it around.
In a final course in finance, we would do one like this, but it's really...
It's just Excel again.
Just straight up, that crossover spreadsheet is very static.
In other words, you can't use it for a whole lot, but it just gives you the idea of what we're doing when we make them year-equivalent projects.
Now, of course, I did your break even.
That's easy.
It's almost too easy to do on a spreadsheet, but the one that I want to take you through now is the free cash flow sheet, just so you're comfortable with it.
This is project analysis.
I'm going to shorten this up just a little bit here.
I have to make it a little smaller.
Okay.
This is one of those, thou shalt not touch anything in that peachy pink area, or the blue or the green.
Leave it Tf alone.
This is a relatively simplified demonstration of doing a free cash flow analysis.
It makes some simplifying assumptions, and those are consistent with the book.
Let me explain.
The big pain in the butt, I don't care what anyone says, in doing projected free cash flows, is the stupid depreciation.
Is it going to be straight line? Is it going to be modified accelerated cost recovery?
What is it going to be? Some of your digits, whatever.
Modeling that stupid little thing requires a little more sophistication.
It's not that hard in Excel anymore, because Excel can be very, you can tell it what depreciation type you want, and it'll do it.
I could have done that here, but the book, for the most part, says,
assume that all of your depreciation occurs at the beginning.
You have capital expenditures, let's say, of $600,000 in this example right here.
So the depreciation expense for year zero is the whole amount.
Now some of this author's books call that bonus depreciation.
It is not how it usually happens. However, there are.
These are called listed capital expenditures, and I swear I can't remember.
It's rule 472 or something like that.
There is this list of what you can expense right away as soon as you buy it.
In other words, you don't go through a depreciation schedule.
You just expense it, book value goes to zero instantly on those.
So it's not completely unrealistic, but it certainly simplifies this problem.
Now the consequence of that would be that immediately your book value becomes zero.
Now aside from the fact that that doesn't look pretty on your balance sheet,
it does have a great benefit because at the end,
your salvage value minus your book value is taxed at your tax rate.
So in other words, your net salvage value is going to be,
the net salvage value is going to be the salvage value.
If you're using 100% depreciation at the beginning,
the taxable, again, the taxable salvage value is salvage minus book.
That's everything, that's always.
But if you've already wiped out your book value at the very beginning of the project,
at the end, you're going to be hit with the tax on your entire salvage value.
So in this situation where you've done this,
your tax is going to be T times salvage value.
It won't be T times salvage minus book because book is zero.
So your tax on your salvage will be just your salvage value
because you don't have any book value left.
You wiped it out at the end.
You wiped it out at the beginning, I should say.
That's the big thing in these sheets is that it's assuming a 100% bonus immediate,
depreciate the whole thing.
Now a couple of other items that I'm going to bring up here on this sheet.
At the beginning of a project, now this is a simplification,
you are going to bring in inventory.
You're just going to bring in inventory.
So that is going to hurt free cash flow in year zero
because you have to boost up your inventory.
But in the years in which a project is working,
so in other words, your inventory is going to boost $100,000.
That's an increase in your net operating working capital,
so that is going to be a negative on free cash flow.
You will subtract that.
But then in year one, if your sales stay the same,
you will lose $100,000 and then you'll buy back for the next year $100,000.
So the net is no change.
And then the same here, you'll lose the $100,000 because you're going to sell it,
but then you'll buy it back and so the net will be a change of zero.
So there will be anything for that one.
Now in year three, the same thing.
You're going to sell the $100,000
and then you're going to buy back $100,000 going into that year,
so the change in net operating working capital will be zero.
Now this is assuming that you have flat sales for four years.
That's what we're doing in this.
Now here's the fun one, year four.
The project is over at the end of the year,
so you have zero repurchase of inventory.
So in the final year, you have a negative.
Your inventory falls ultimately by $100,000.
In the first year, it goes up by $100,000.
Then it doesn't change.
This is the change in net operating working capital.
So in the first year, you have a boost that hurts increases in net operating working capital,
decreased free cash flow.
So you have a new $100,000, and then in the first year,
you sell it, buy it back to fill the warehouse,
so you have a net change of zero.
Then in the second year, same thing.
You've sold it, so you've got to bring back, you sell it,
so now you have to bring back in that much inventory for the third year.
So the change is zero in net operating working capital.
Again, I'm just repeating what I said before.
Again, you sell it, so you have to, you sold it off,
so you have to bring it back in, so there's no change.
But in the fourth year, you bleed off that $100,000.
You don't replace it because the project is over in that year.
So you recover that $100,000.
So it boosts at the beginning and drops at the end.
Now the first question might be, well, why do we even worry about it?
Because this is a drain on free cash flow.
This is a replenishment of free cash flow.
The thing is that we're going to do an NPV.
So this $100,000 discounted back here is not as much as the positive $100,000 at the beginning.
So you lost some money, so you lose something here.
Yes, it ends with the warehouse empty, just like it began with the warehouse empty.
However, selling off that $100,000 of inventory
isn't worth as much four years out as it was to buy it at the beginning.
So that's why we have to take both into account.
Now the next thing in this, and I'll go through this again on Monday
just to make sure you're clear on this.
Now the next thing is that you're seeing here, and this is, I don't think your book uses this term,
but it is the correct term, spontaneous financing.
A number of companies, well, we've got this capital expenditure.
Well, do we go out, do we sell stock, do we borrow money, how do we do it?
Well, there is a way that companies do it internally.
They just slow down paying their bills.
More they accelerate their credit sale terms.
In this case, it's modest.
They're just going to make on average that they have $20,000 more at the beginning
than they would have if they had paid their bills the way they used to.
It's just slowing down so that you can, a little bit of your financing
comes from just internal short-term cash management policies.
So if I slow down paying my bills so that I have, I have freed up $20,000,
well that's $20,000 I don't have to borrow or I don't have to sell in stock.
Now at the end, I'll bring myself back, at the end of the project's life,
I'll bring myself back to my previous days payable outstanding as we call it.
So you can see here, see how at the beginning you have a positive $20,000.
In other words, this is helping free cash flow by increasing a current liability.
In other words, you're financing a long-term project with a little bit of short-term cash management.
But then at the end, you go back, you know, that $600,000, that project is over,
so we go back to what we were doing before.
That's why you see this spontaneous financing in here.
So ultimately, you have the change, and another one here,
the change in the operating working capital and all that kind of stuff.
So the bottom line is this.
All you have to, notice that this is a flat model.
It just says we're going to sell 100,000 units every year for four years.
That's all. And then we end the project.
So it's obviously a simplification.
And we're going to set a price of $4.50 per unit on this.
Okay, now, and we say that means, and I should really, this is pink actually,
this is actually pink, should have remembered that.
So in other words, you're going to, revenues are going to be the price per unit
times the number of units you sell.
So now this is where it gets to be more classical pro forma.
Your costs as a percent of revenue are 40%.
You could make that any number you want.
You could make it what that percentage has been for the last year,
the average of the last three years.
You could make it even a target.
You can do whatever you want with it.
I just put 40% there.
Now you're selling general and administrative expenses.
Those are going to be, I'm saying, so 20% of it.
Now ultimately, what that means is that your variable cost,
your unit variable cost is 60% of revenue.
That's all that's saying.
And I just broke it up into two different parts because you'd probably figure two
different percentages for costs of goods sold and for SG&A.
You'd analyze those separately to get your total variable cost percentage.
The next one, you just put in whatever you're told is the initial increase in inventory.
And then you put in the cap, what's your cap, cap X is, capital expenditure.
Now in this case, like I said, super simplifying it,
you expense the whole capital expenditure in the first year.
But we're going to slow down our paying of our bills, an average of $20,000 a year.
So we have $20,000 more for the life of the project.
Life is four years.
Now the book value at the end of the project, now that actually, that should be a pink.
I just realized that.
Because your book value would be your salvage value, $100,000 minus 100% of $100,000
because you took a 100% bonus depreciation.
So you don't really need to calculate that at all.
Tax rate, 21%.
Now we are going to need a net present value, so we have to have a discount rate.
We're going to need an internal rate of return, so we give it a hurdle rate.
Now you notice down there at the end, this model can even take into account some inflation.
But all it does is it's just for the first year, you get your depreciation expense,
your capital expenditure, your spontaneous financing,
and your change in inventory, net operating work and capital.
Technically, the spontaneous financing is part of the change in net operating work and capital.
But I break it out.
So ultimately, in the first year, you are going to spend out of pocket net of tax shield from the depreciation,
net of the cost of the inventory, net of saving $20,000 and all that kind of stuff.
You're going to have a free cash flow of negative $554,000.
And then you live through the project.
Classic revenue minus cost of goods sold is your gross margin,
minus your selling general and administrative expenses brings you to operating margin.
Subtract your taxes, and you get no pat.
And that's all that this does.
Once you're into the project itself, the block, the pro forma actually looks pretty clean.
But then at the end of the project, you will get back to paying your bills the old way.
You'll sell off that inventory, and you won't replace it.
So that will save you $100,000.
And then the salvage value will just be basically the salvage value times the tax rate.
So that's $79,000 is just the 21% times the salvage value, which is $100,000.
And this is your stream right here.
This is the free cash flow for the project, the Holy Grail.
And it's on that that we will make the decision.
Now, at a discount rate of 8.5%, the net present value calculates to be a nice $26,500.
It's a go. Accept it.
If our hurdle rate is 10%, we found that the internal rate of return is 10.39%, so we accept it.
And the profitability index is above 100%, so we would accept it if we do profitability index decision making.
Now, let's look at what would happen.
Let's say that I boost the discount rate, well, let's say 12%.
The NPV goes negative, and the profitability index, of course, goes negative because the NPV did.
So we would reject it if we had used a discount rate of 12%.
But notice, if the hurdle rate isn't altered, then we still accept it if we're using the internal rate of return method.
So let me go back here.
Now, let's see what would happen if we increase the hurdle rate to, let's say, 12%.
Well, then we reject it.
Because the internal rate of return was 10.39%.
That's less than the hurdle rate, so you reject.
So if we put the discount rate and the hurdle rate together, we'd reject it on all three criteria.
But let me take you back for one more thing.
What if there's inflation?
Here's a very interesting part of this.
Suppose that we have, we're projecting an expected inflation rate over the life of this project of 5% per year.
Now, remember this 26,000 and this 500 and this 10.39.
So let's put in 5% inflation.
What you'll do is you'll see the numbers up on top.
See how the second, third, and fourth year, the cost, the revenues, the cost, the SG&A, they all go up.
NoPAC goes up.
Notice what happens to the NPV, the IRR, and the profitability index if there's inflation.
As long as the company can pass along the inflation, inflation does not hurt a company one bit.
Matter of fact, it makes this project more profitable.
So what kills us, inflation, because we have to pay for the goods at higher prices, actually benefits corporations.
As long as they can pass along that inflation to the consumers, their projects become more valuable in an inflationary environment.
So inflation, we want to kill it, but at the same time, corporations are kind of blase about that.
Yeah, okay, fine, but if the inflation keeps going, if the inflation stays like this over the life of that project,
this project just becomes more and more profitable to them.
So notice the profitability index went from 105 to 111.
Yeah, that's what goes on.
That's a little insight in finance that is not very well appreciated.
Inflations hurt consumers, and they hurt businesses that buy supplies.
But as long as they can pass those down the food chain to the lowest entity, which is the consumers, doesn't hurt them a bit.
It just makes it more profitable.
Okay, so that one is that, and that will be mostly for next week,
and I'm giving it to you now in case you want to get ahead on the homework and kill it off.
But remember, I have a quiz on Thursday, on Wednesday of next week.
No, on Thursday of next week, I'm sorry.
But that's all I have for you today. I thank you.