Principles of Finance_Biederman_Date_042810

Principles of Finance_Biederman_Date_042810 - Operating...

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WSJ Leads: - The Goldman “Clown-Show” Fannie? Freddie? Never head of them! - Greece/Portugal et. Al o Too much debt, too low credit ratings, too many promises, too little responsibility Anomalies: Stock price behavior and Market Efficiency - Mondays have a tendency to have negative average return (day-of-the-week effect) - Dow would be at around 68 million if it wasn’t for Mondays - September= overall worst month of year for the market Behavioral (psychological) finance: - Relationship between mood/attitude and financial markets Super bowl effect - 80% accurate throughout life of super bowl - When an original team wins, market goes up, but falls when any one unoriginal from AFL wins - Conclusion about market efficiency - Suggests market is not effective in short run but in the long run it will figure it out START EXAM 4—Chapter 8 What is capital budgeting? - Analysis of potential additions to fixed assets - Long term decisions/strategic planning of capital you have or you will have to raise
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Unformatted text preview: Operating budget-short run= operating year to year Difference between independent and mutually exclusive projects-Independent: 2 projects don’t get in the way of each other-Mutually exclusive: choose one or the other, can’t do both Difference between normal and non-normal cash flow streams-Normal: negative cash flow, then positive (1 change in cash flows)-Non-normal: multiple changes (spend, get, spend, get, spend…) Capital budget valuation methodologies slide Know how to do the examples with Cash flow projects S and L-IRR on a bond= yield to maturity-I under NPV= WACC (K) Advantages and disadvantages of Payback 8-13-Short sighted NPV-Also called price of project-When NPV=0 then K=IRR Rationale for the NPV method-Example: Disney o Multiple ops that need to do multiple things o Accepted if project NPV>0 o Need to make decisions NPV= best because puts true PV as actual flows of money...
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Principles of Finance_Biederman_Date_042810 - Operating...

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