Risk, Cost of Capital, Capital budget 2003,10,30.

Slides:

Advertisements

Similar presentations

Irwin/McGraw-Hill © The McGraw-Hill Companies, Inc., 1999 Corporate Finance Fifth Edition Ross Jaffe Westerfield Chapter 12 Risk, Return, and Capital.

Advertisements

The cost of capital (aka hurdle rate) and NPV analysis.

1 Risk, Return, and Capital Budgeting Chapter 12.

Capital Budgeting & Risk Invest in highest NPV project Need Discount rate to get NPV.

Cost of Capital Problems

Last Study Topics Company and Project Costs of Capital Beta As a Proxy.

Corporate Finance Lecture 6.

QDai for FEUNL Finanças Nov 30. QDai for FEUNL Topics covered  Capital budgeting with debt Adjusted Present Value Approach Flows to Equity Approach Weighted.

QDai for FEUNL Finanças December 5. QDai for FEUNL Topics covered  An example of APV  Beta and leverage.

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved CHAPTER 12 Risk, Cost of Capital, and Capital Budgeting.

Capital Structure II Corporate income taxes. Now with taxes.  No threat of bankruptcy.  Corporate taxes, not personal.  Government gets a piece of.

Weighted Average Cost of Capital The market value of the firm is the present value of the cash flows generated by the firm’s assets: The cash flows generated.

15-0 Chapter 15: Outline The Cost of Capital: Some Preliminaries The Cost of Equity The Costs of Debt and Preferred Stock The Weighted Average Cost of.

Chapter 12 – MBA5041 Cost of Capital Cost of Equity Capital Estimation of Beta Determinants of Beta Extensions of the Basic Model Estimating International.

Solvay Business School – Université Libre de Bruxelles 22/06/2015ExMaFin Modgliani Miller 1 Corporate Finance Modigliani Miller Professor André.

QDai for FEUNL Finanças November 7. QDai for FEUNL Topics covered  CAPM for cost of capital  Estimation of beta.

Chapter 9 Principles of Corporate Finance Eighth Edition Capital Budgeting and Risk Slides by Matthew Will Copyright © 2006 by The McGraw-Hill Companies,

Chapter 12 Risk, Return, and Capital Budgeting. Review Item  Yahoo is considering building a cafeteria for its employees.  At a high discount rate appropriate.

Capital Budgeting Under Uncertainty

ECONOMIC VALUE ADDED MANAGERIAL FINANCE 11 7/24/99.

Capital Structure, Risk Adjusted Beta and WACC By Binam Ghimire

Sources of Finance and the Cost of Capital. learning objectives sources of finance equity capital compared with debt capital gearing the weighted average.

Why Cost of Capital Is Important

Risk, Cost of Capital and Capital Budgeting Chapter 12

Weighted Average Cost of Capital (WACC) Module 6.2 Copyright © 2013 by the McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.

FIN 614: Financial Management Larry Schrenk, Instructor.

Chapter 13: Risk, cost of capital, and capital budgeting

Capital budgeting and the capital asset pricing model “Less is more.” – Mies can der Rohe, Architect.

Chapter 7 Project Cash Flows and Risk © 2005 Thomson/South-Western.

Chapter 9 Principles of Corporate Finance Tenth Edition Risk and the Cost of Capital Slides by Matthew Will McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill.

Kelvin Xu Slides prepared by: Asthon Wu, Garrett Kuhlmann.

Risk, Return, and Capital Budgeting (Chapter 12) Financial Policy and Planning (MB 29)

Key Concepts and Skills

CAPITAL BUDGETING INITIAL INVESTMENT PLANNING HORIZON TERMINAL VALUE REQUIRED RATE OF RETURN NET CASH FLOWS.

McGraw-Hill/IrwinCopyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. Risk, Cost of Capital, and Capital Budgeting Chapter 12.

Long-Run Investment Decisions: Capital Budgeting

FIN 614: Financial Management Larry Schrenk, Instructor.

McGraw-Hill/Irwin Corporate Finance, 7/e © 2005 The McGraw-Hill Companies, Inc. All Rights Reserved CHAPTER 12 Risk, Cost of Capital, and Capital.

Cost of Capital Professor Ronald Miolla. Agenda 1) What is Cost of Capital? 2) How to compute Cost of Capital. 3) Cost of debt. 4) Cost of equity.

Ch 9. The Cost of Capital. Goals: To understand cost of capitals or hurdle rate To understand how to estimate cost components To understand how to estimate.

Risk, Return, and Capital Budgeting What should be the appropriate Required Rate of Return (RROR) for discounting CFs of CB Projects?

Exercises in Capital Structure and Cost of Capital

Costs of Capital Weighted Average Cost of Capital (WACC)

Ch 14 Cost of Capital. In this chapter, the important fact to note is that the return an investor in a security receives is the cost of that security.

1 資金成本 Cost of Capital. 2 Weighted average cost of capital (WACC). The discount rate used in the capital budgeting 1. Identify the components to be used.

TOPIC: WEIGHTED AVERAGE COST OF CAPITAL (WACC) Firm Value should be Maximized when WACC is Minimized Factors that impact on WACC include operating profitability,

Cost of Capital. Outline Meaning of Cost of Capital Significance of Cost of Capital Concept of Weighted Average Cost of Capital (WACC) Cost of Components.

Risk and the cost of capital

Slide 1 Cost of Capital, and Capital Budgeting Text: Chapter 12.

1 Global Cost of Capital and Financial Structure International Financial Management Dr. A. DeMaskey.

1 The Cost of Capital Corporate Finance Dr. A. DeMaskey.

Why Cost of Capital? – Overall Cost of Capital of the Firm – Investment Proposal- Accept /Reject – Capital Structure – Yardstick to measure the worth of.

Prepared by Robert F. Brooker, Ph.D. Copyright ©2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide 1 Managerial Economics.

F9 Financial Management. 2 Designed to give you the knowledge and application of: Section F: Estimating the cost of equity F1. Sources of finance and.

8-1 Risk Analysis in Investment Decisions CHAPTER 8 McGraw-Hill/Irwin Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Cost of debt = Interest Payments. Debts are the borrowing which company takes to finance the company therefore they have to pay interest on those borrowing.

14-0 The Weighted Average Cost of Capital 14.4 We can use the individual costs of capital that we have computed to get our “average” cost of capital for.

RISK, COST OF CAPITAL, AND CAPITAL BUDGETING This topic applies the concept of NPV to risky cash flows. NPV = C o + Σ C t ¯ /(1+r) t r = discount rate.

Cost of Capital Chapter Fourteen. Prof. Oh, KUMBA 2010Ch14-1 Corporate Finance Key Concepts and Skills  Know how to determine a firm’s cost of equity.

Key Concepts and Skills

Financial terminologies

VANDELAY INDUSTRIES WACC EXAMPLE.

Risk and the Cost of Capital

Apprising corporate strategic decisions

The McGraw-Hill Companies, Inc., 2000

Risk, Return, and Capital Budgeting

Managerial Economics in a Global Economy

Corporate Finance, Concise Risk and the Cost of Capital

Risk, Cost of Capital, and Capital Budgeting

Capital Budgeting Issues

Presentation transcript:

Risk, Cost of Capital, Capital budget 2003,10,30

Present value Cash flow C_0,C_1, …, C_T NPV= 1/(1+r) is the discount factor What’s the real discount factor

Cost of capital NPV, cash flow, 1/(1+r) are related Given NPV and cash flow, we can find r=? This r is the require return Knowing r and cash flow, we can find NPV. Having r and NPV, we can verify cash flow.

Cost of capital The require return is the cost of capital to invest in the company (project) R=R_F + Beta*(R_M-R_F) R_F: risk-free rate R_M-R_F: market-risk premium Company beta: Beta

Beta Estimation of Beta Real-World Betas: stability of Beta, Using and industry Beta Equity beta, asset beta Beta_asset= Debt/asset *Beta_debt + equity/asset * Beta_equity

Beta of a company Cyclicality of revenues Operating leverage Financial leverage

The Firm versus The Project Corporate discount rate, Hurdle rate, cutoff rate, benchmark, and cost of capital are synonymous.

Weighted Average Cost of Capital (WACC) WACC=equity/asset * R_asset + debt/asset *R_debt *(1-Taxes) R_debt =interest

Liquidity Market-impact factor