{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

321Class04-Decision%20Making

# 321Class04-Decision%20Making - Nominal vs Real Interest...

This preview shows pages 1–11. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Nominal vs. Real Interest Rates The Fisher Equation Real CF = Nominal CF / (1 + inflation rate)
Burgernomics

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Decision Making DCF NPV IRR Payback Period Breakeven Analysis Equivalent Annual Cost
Capital Rationing Mutually Exclusive Investments Limited resources Rationing Financial Rationing (“Hard Rationing”) Managerial Rationing (“Soft Rationing”)

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Real World
Discounted Cash Flows Net Present Value = -CF0 + CF1 + CF2 +…+ CF∞ NPV= + + + …. NPV= C0 + PV(DCF)t = C0 + ) 1 ( 1 1 r CF + ) 1 ( 2 2 2 r CF + ) 1 ( 3 3 3 r CF + + t t t r C ) 1 (

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Does NPV Lead to Better Decisions? Real Dollar Values (not Nominal) Actual Cash Flows You set the r (“opportunity cost of capital”) Look at each project separately: NPV a + NPV b = NPV (a + b) Book Value required by GAAP
What is Cost of Capital? Balance Sheet Liabilities = Debt Equity Cost of Debt = K d = Interest Payments / Debt Cost of Equity = K e = g P DIV r + = 0 1

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
What is the Total Cost of Capital?
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 25

321Class04-Decision%20Making - Nominal vs Real Interest...

This preview shows document pages 1 - 11. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online