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15. Cost of Capital WACC = the required rate of return on the overall firm = the discount rate appropriate for cash flows that are similar in risk to those of the overall firm +) pure play approach SML and WACC - if a firm uses its WACC to make accept reject decisions for all types of projects, it will have a tendency towards incorrectly accepting risky projects and incorrectly rejecting less ri..

12. Some Lessons from Capital Market History 1. Risky assets, on average, earn a risk premium. There is a reward for bearing risk 2. The greater the potential reward from a risky investment, the greater is the risk 3. the concept of market efficiency - In an efficient market, prices adjust quickly and correctly to new information - EHM: All investments in the market are 0 NPV - Consequently, ass..

9. Net Present Value and Other Investment Criteria NPV = - initial cost + present value NPV Rule: NPV>0, do invest Payback Rule payback: length of time it takes recover our initial investment (break-even measure) Discounted payback: length of time required for an investment's discounted cash flows to equal its initial cost AAR: Average accounting return = average net income / average book value ..

5. Introduction to Valuation: The Time Value of Money For a given rate of return, the value at some point in the future of an investment made today can be determined by calculating the future value of that investment Future value (FV): The amount an investment is worth after one or more period Compounding Present Value PV = \cfrac{1\$}{(1+r)^t} Discounted cash flow (DCF) valuation = Calculating ..

3. Working with Financial Statements Cash flow from assets = Cash flow to creditors + Cash flow to stockholders(owners) Sources and uses of cash how to trace the flow of cash through the business over the year - sources: a firm's activities that generate cash - uses: application of cash Standardized financial statements differences in size make it difficult to compare financial statement how to ..

1. Introduction 세 가지 주요 관심 분야 Capital budgeting What long-term investment should the firm take? Capital structure Where will the firm get the long-term financing to pay for its investments? What mixture of debt and equity should we use to fund our operations? Working captial management How should the firm manage its everyday financial activities? working capital = short-term assets **How much** ..