11
Project Analysis and Evaluation
1
Key Concepts and Skills
Understand forecasting risk and sources
of value
Understand and be able to do scenario
and sensitivity analysis
Understand the various forms of breakeven analysis
Understand operating levera
PARTI:VALUEand VALUECREATION
MakingInvestmentDecisions
With theNPVrule
2
TopicsCovered
Applying the Net Present Value Rule
Which cash flows should we consider?
How can we deal with inflation?
Case: Investment appraisal of IM&C Project
Investment Timing
Th
PART III
Selected Corporate Finance Topics
EfficientMarkets&
BehavioralFinance
2
TopicsCovered
Difference between investment and financing decisions
What is an efficient market?
Random walk
Efficient market theory
Empirical evidence on market efficiency
B
PARTII:RISKand CAPITALBUDGETING
Chapter
PortfolioTheoryandCAPM
2
TopicsCovered
Modern Portfolio Theory
Optimal portfolios of risky assets
Optimal portfolios of risky assets and a riskless asset
Asset Pricing Models
CAPM and the Security Market Line
Fama-F
PART III
Selected Corporate Finance Topics
CAPITALSTRUCTURE
DoesDebtPolicyMatters?
TopicsCovered
2
Capital structure
Effect of financial leverage on firm value: Modigliani-Miller Proposition I
Effect of financial leverage on cost of capital: MM Propositio
PARTI:VALUEand VALUECREATION
TheValueofCommonStocks
2
TopicsCovered
How Common Stocks are Traded
How Common Stocks are Valued
Estimating the Cost of Equity Capital
Stock Prices and EPS
Valuing a Business by Discounted Cash
Flows
Prof.dr. Geert Van Campenh
PART III
Selected Corporate Finance Topics
BestPracticesinCapitalBudgeting
ProjectAnalysis
2
TopicsCovered
Sensitivity Analysis
What-if analysis
Scenario analysis
Break-even analysis
Advanced Modeling (no details)
Monte Carlo Simulation
Real Options and D
PART III
Selected Corporate Finance Topics
Howmuchshouldacorporation
borrow?
2
TopicsCovered
Relaxations of MM assumptions
Corporate taxes
Corporate and personal taxes
Cost of financial distress
Incentives and financial leverage
Pecking Order of Financial
PART I: VALUE and VALUE CREATION
Valuing Bonds
2
Topics Covered
Introduction
Bond Pricing:
Using The Present Value Formula to Value Bonds
Bond Volatility
How Bond Prices Vary With Interest Rates
Bond Risks
Term Structure (basics)
Real and Nominal Rates of
PARTII:RISKand CAPITALBUDGETING
Capital Budgeting and Risk
2
TopicsCovered
Company and Project Costs of Capital
Measuring the Cost of Equity
Setting Discount Rates without CAPM Beta
Certainty Equivalents
1
3
CostofCapital(CoC):Introduction
We rely on the
TABLE 11.1 Preliminary cash-flow forecasts
for Otabai's electric motor project
(figures in billions of yen)
Year 0
Investment
Revenue
Variable cost
Fixed cost
Depreciation
Pretax Profit
Tax
Net profit
Operating cash flow
Net cash flow
NPV
Notes:
Market si
Concise Formularium
Financial Algebra
0
The discount factor
Dt
The present value
W0 Wt Dt
The future value
Wt
(1 r)
t
Wt
(1 r )t
W0 / Dt W0 (1 r )t
Present value of an annuity (post-numerando) C1 over t years
C1
1
1
r
r (1 r )
, with the annuity factor a
Corporate Finance
B KUL HBA07A
Bachelor of Business Administration 3rd year
Prof.dr. Geert Van Campenhout
Practical Issues
Contact Info
Prof.dr. Geert Van Campenhout
T Serclaes B05 19
webpage:http:/tinyurl.com/ovzqnt3
[email protected]
Offic
1
Extra Exercises Corporate Finance
(Self-study, including key to solution)
Below you find one or two extra exercises per chapter. Exercises are based on
the exercises in the book. It strongly advised to solve the exercises blinded, and
only check your so
p1 of 5 (excluding formula sheet)
Markobtained:
MUST be filled out by the STUDENT
SURNAME and FIRST NAME: (fill out the name as it appears on your passport and use
capitals)
.
STUDENT NUMBER (= R-number):
.
1. Please switch off your mobile phones, smartp
1/5/2016
ModiglianiMiller:PropositionII
D
E
rA rD
rE
DE
DE
D
rE rA rA rD
E
PropositionII:Expectedrateofreturnonthecommonstockofaleveredfirmincreases
inproportiontothedebtequityratio(expressedinmarketvalues)
Notethatleverageincreasestheriskofstock
PARTI:VALUEand VALUECREATION
Chapter
NetPresent Value(NPV)and
Other Investment Criteria
2
TopicsCovered
Review & Evaluation of Decision Methods
NPV
Payback Period
Book Rate of Return
Internal Rate of Return
Capital Rationing
Issues
Profitability Index
Pro
Hedging
HC/FC convention: price in units of HC per 1 unit of FC USD/EUR 1.33 = 1 EUR is worth 1.33 USD
To
invert bid & ask: 1/ask = bid, 1/bid = ask
Bid-ask quote for FC: to determine how much FC HC will buy: HC amount/ask rate
To determine how much FC is