"Points Covers in Corporate Finance "

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"Points Covers in  Corporate Finance "
 
•Valuation and Cost of capital
 
•Capital budgeting
 
•Capital structure, financing and dividend policy
 
•Working capital
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On 23 November 2009 at 16:21 Report
Replies (16)
Guest

Valuation

 

 

Generalised valuation 
  Arbitrage and value additivity
 
Patterns  
Level perpetuity 
Growing perpetuity 
Level annuity
Growing finite cash flow
 
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On 23 November 2009 at 16:35
Guest

Valuation

 

 

 

Growing finite [t years] cash flow

 

C1/(r-g){1-(1+g)t/(1+r)t}

 

 

 

 

•Compounding intervals (1+r/m)m-1
    Continuous compounding
•Stated and effective rates
•Nominal and real rates
    1+rnominal=(1+rreal)(1+inflation rate)

 

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On 23 November 2009 at 16:40
Guest

Valuation: Straight Bonds

Valuation: Straight Bonds

 

 

 

•YTM
•Duration
    Sensitivity of value to changes in interest rates
[1*PV(C1)/V]+[2*PV(C2)/V]+[3*PV(C3)/V]
@ V/V = @ (1+r)/(1+r)*D
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On 23 November 2009 at 16:42
Guest

Valuation: Common Stock

  

 

•Perpetual growth models
    Sustainable growth
P0=No-Growth +PVGO
    No-growth =EPS1/r
    PVGO=NPV1/(r-g)
    where NPV1 =-INV1 +INV1*ROE/r
     g=Ploughback*ROE

EPS1/P0 interpretation

Reply
On 23 November 2009 at 16:43
Guest

 

•Multiple stages
   Supernormal stage plus PV of normal growth
•Free cash flow
   NOI approach
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On 23 November 2009 at 16:51
Guest

Cost of Capital

 

 

•Security return and standard deviation
•Portfolio return and standard deviation
•Diversification Portfolio variance=
    1/N Average Var+(N-1)/N Average covariance
•Systematic and unsystematic risk
•CAPM
•Opportunity cost of capital r [rA]and
 
 
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On 23 November 2009 at 16:54
Guest

Cost of Capital

 

 

1. VL = VU +Tc*D  
 
 
2. WACC = D/V * (1-Tc) * rD+E/V * rE  [Definition of WACC]
 
3. rE= rA + (rA - rD ) * (1- Tc) * D/E  [MM Proposition II]
 
4. bE = {1+ (1- Tc) * D/E} *bA  [If debt is risk free]
 
5. rE= rf + (rM - rf) *bE  [CAPM]
 
6. WACC= rA *(1- Tc * D/V)  MM
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On 23 November 2009 at 17:13
Guest

 

•Contingent cash flow
 Call/Put
 American/European
 Binomial
 Black-Scholes
 Underlying asset price, Exercise Price, Risk-free rate, Volatility, Time
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On 23 November 2009 at 17:14
Guest

 

 

Capital Budgeting

 

 

•NPV and IRR not payback and accounting rate of return
 
•Accept/reject single project use NPV or IRR, unless no/multiple IRR
 
•Mutually exclusive projects: Same life and risk
   Use NPV [or IRR of difference between projects]
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On 23 November 2009 at 17:15
Guest

 

•Mutually exclusive projects: Different lives same risk
 
   Use NPV-assumes replacement projects have zero
 
 
 
•Incremental nominal cash flows with empirically measured discount rate
 
•Components of cash flow
 
   Investment in fixed assets, salvage value
 
   Investment in working capital, release
 
   Operating revenues/expenses
 
NO INTEREST
 
 
NPV. OK for projects with long lives
 
   Use NPV-with specific replacements that make project with comparable lives
 
   Use replacement chain or EAC
 
Care: Use only real cash flows for EAC
Reply
On 23 November 2009 at 17:20
Guest

 

•NPV assumes “now or never”
 
•Real Option framework
 
 Abandonment
 
 Follow-up
 
 Wait and learn
 
 Flexibility
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On 23 November 2009 at 17:21
Guest

 

•Market Efficiency
 
•MM-1 No taxes
 
•MM-2 Corporate taxes
 
•Miller Both corporate and personal taxes
 
 
    GL= {1-(1-TC)*(1-TpE)/(1-Tp)}
 
•Bankruptcy
costs
 
•Agency costs
Reply
On 23 November 2009 at 17:23
Guest

 

•MM Does not matter
 
•Lintnerbehavioural model
 
     DIV1-DIV0=Adjustment rate*(target ratio*EPS1-DIV0)
•Agency
costs/signalling
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On 23 November 2009 at 17:29
Guest

 

•Operating cycle,
 
cash
conversion cycle, weighted cycles and supply chain management
 
 
•Investment in receivables
 
•Cash management
 
 
    EOQ and Miller-Orr models
Reply
On 23 November 2009 at 17:31


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