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Corporate Finance
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Corporate Finance

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Corporate Finance
© 2008 Ventus Publishing ApS
ISBN 978-87-7681-273-7

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Corporate Finance
4
Contents
Contents
1. Introduction
2. The objective of the firm
3. Present value and opportunity cost of capital
3.1 Compounded versus simple interest
3.2 Present value
3.3 Future value
3.4 Principle of value additivity
3.5 Net present value
3.6 Perpetuities and annuities
3.7 Nominal and real rates of interest
3.8 Valuing bonds using present value formulas
3.9 Valuing stocks using present value formulas
4. The net present value investment rule
5. Risk, return and opportunity cost of capital
5.1 Risk and risk premia
5.2 The effect of diversification on risk
5.3 Measuring market risk
5.4 Portfolio risk and return
5.4.1 Portfolio variance
5.4.2 Portfolio’s market risk
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Corporate Finance
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5.5 Portfolio theory
5.6 Capital assets pricing model (CAPM)
5.7 Alternative asset pricing models
5.7.1 Arbitrage pricing theory
5.7.2 Consumption beta
5.7.3 Three-Factor Model
6. Capital budgeting
6.1 Cost of capital with preferred stocks
6.2 Cost of capital for new projects
6.3 Alternative methods to adjust for risk
6.4 Capital budgeting in practise
6.4.1 What to discount?
6.4.2 Calculating free cash flows
6.4.3 Valuing businesses
6.5 Why projects have positive NPV
7. Market efficiency
7.1 Tests of the efficient market hypothesis
7.1.1 Weak form
7.1.2 Semi-strong form
7.1.3 Strong form
7.1.4 Classical stock market anomalies
7.2 Behavioural finance
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