Corporate Finance page 3

Corporate Finance page 3 - - Chapter 3 - Competitive...

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- Chapter 3 - Competitive market: market where goods can be bought and sold at the same price - Ex: You can trade $20000 for 11000 Euros and 200 shares of $40 stocks with exchange rate .8 Euro = $1. Should you take it? Yes. Should you take it if you anticipate Euro to plummet? Yes, just take the investment and then immediately sell your Euros for the .8 price again to get a profit! - Time value of money = difference in value between money today and money in the future - Risk-free interest rate = for a given time period it is the interest rate at which money can be borrowed/lent without risk over that period - (1+rf) = interest rate factor for risk free cash flows - Discount Factor is the discount at which we can purchase the money in the future (1/1+r) and the risk-free interest rate is the discount rate for risk-free investment - Present Value – cost or benefit is computed in terms of cash today - Net Present Value – The difference between the present value of a project’s benefits and the present value of its costs = PV(benefits) – PV(costs)
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This note was uploaded on 01/11/2011 for the course ENG 120 taught by Professor Kaminsky during the Fall '10 term at Berkeley.

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Corporate Finance page 3 - - Chapter 3 - Competitive...

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