Day 22-Ch 8-11.16.11

Day 22-Ch 8-11.16.11 - Day22 Chapter8:RiskandReturn...

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Business Management 201 Day 22 Chapter 8: Risk and Return November 16, 2011
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Day 22 Agenda 1) Regular TA Review Session Schedule this Week 2) Only ONE TA Session Next Week: Tuesday 11:00 AM- 1:00 PM in 184 TNRB (Friday Schedule) 3) Group Book Discussion on Monday, November 21— Email Group to Confirm Date/Time 4) Students With Problems Contacting Their Group? 6) POW Quiz #10: Hansen Case Due Friday, Nov 18 at  11:59 PM—Counts Double! 7) Emerson Case Discussion—Mock POW #10 8) Chapter 8: Risk and Return
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Capital Budgeting Overview Beginning Initial Outlay : Equipment Cost Shipping/Installation Maintenance Sales Tax Gain/Loss on Sale of  Old Equipment NWC Annual Operating Cash Flow Formula: OCF = (Sales – Costs)*(1-Tax Rate) + (Depreciation*Tax Rate) +/- Change in NWC Middle Annual Cash Flows  [Use Formula] Gain/Loss on Sale of  Old Equipment Potential Missed Old  Depreciation Change in NWC Ending Annual Cash Flow  ALL Terminal Cash  Flows : Gain/Loss on Sale of  Old Equipment Gain/Loss on Sale of  New Equipment Return of NWC Fixed Costs Variable Costs Annual Depreciation Tax Shield = Dep*Tax Rate Only Applies if NWC  changes with sales. Capitalize ONLY expenses  related to new project.
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Chapter 8: Chapter 8: Risk & Return
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Mind Map Why?:  Analysis of  expected return  and the  risk  required to generate that expected  return is basic to most financial  decisions.   The primary undertaking is an  investigation of  how   to measure risk . “Tracking performance without risk is…shortsighted.” It is  only  with a prior  understanding of  risk   that evaluation of  return  is possible! 
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Mind Map Learning Objectives: Develop an understanding of  risk  for an  individual  security  and a  portfolio Calculate  expected return  and  standard deviation Demonstrate an understanding of  diversification   and  correlation Articulate the difference between  systematic  [market] risk nonsystematic  [firm specific]  risk   and  total risk Describe the calculation of  beta Calculate required return with  CAPM    
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Mind Map Key Words/Concepts: Risk as a Two-Tailed Concept Standard Deviation Correlation/Diversification Systematic vs. Nonsystematic Risk Beta Capital Asset Pricing Model (CAPM) Build-Up Method  
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Risk and Return Risk and Return Return Return Risk Risk
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Day 22-Ch 8-11.16.11 - Day22 Chapter8:RiskandReturn...

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