The no-tax case:
Modigliani-Miller proposition I:
VL E D VU
Modigliani-Miller proposition II:
rA rU rWACC
( rU rD )
E 44 2 4 4
Additional return due to
added risk from leverage
FUNDAMENTALS OF CAPITAL
THE CAPITAL BUDGETING PROCESS
Forecasting projects revenues and cost (we will not be covering this)
Part 1. Incremental Earnings The amount by which a firms earnings
are expected to change as a results of an investment
RISK AND RETURN IN CAPITAL
RISK AND RETURN
How does risk relate to returns?
VALUE OF $100 INVESTED AT THE END OF 1925 IN U.S. LARGE STOCKS (S&P 500),
SMALL STOCKS, WORLD STOCKS, CORPORATE BONDS, AND TREASURY BILLS
portfolio of U.
COST OF CAPITAL
WHY COMPANY COST OF CAPITAL IS
The return to an investor is the same as the cost to the
firm two sides of the same coin.
Cost of capital provides the firm with an indication of
how the market views the risk of its assets.
Curtin Business School (CBS)
School of Economics and Finance
FNCE2000 Introduction to Finance Principles
Semester 1, 2016
Unit study package code:
Mode of study:
Tuition pattern summary:
Note: For any specific variations to
Financial manager 3 tasks: investment, financing, dividend decision
Investment: evaluating the size of future cash flows, timing of FCF, risk to FCF
Owned and run by one person.
They are easily and inexpensively formed (very small wit