# Lernkarten

Jasmin Brander
Karten 182 Karten 7 Lernende English Universität 10.11.2014 / 24.04.2019 Keine Angabe
0 Exakte Antworten 182 Text Antworten 0 Multiple Choice Antworten

0 // Introduction

What are the two kinds of decisions that companies face?

What INVESTMENTS are we going to make? -> spending money
- real assets (plants etc.)
- R&D
- corporate jet...

How are we going to FINANCE these investments? -> raising money
- borrow from a bank
- use retained CF
- sell additional shares of stock
- risk management...

0 // Introduction

Which side is more important: investing or financing?

It depends.

During a boom: Investment-side (you have to grow)

During a recession: Finance-side (you have to survive)

1 // Capital Budgeting - PV and the NPV Rule

What does capital budgeting mean?

AND

How can we compare projects when the cash flows arise at different points in time and have different levels of risk?

Capital Budgeting = rules for making investment decisions

AND

Comparison of projects:

With the Present Value (PV)

It summarizes the value of the cash flow stream in a single number which takes into account
- that a dollar today is worth more than a dollar tomorrow and
- that a safe dollar is worth more than a risky dollar

1 // Capital Budgeting - PV and the NPV Rule

Show the formula for the PV of a future CF to be received one period from now

1/(1+r) = discount factor

r = rate of return demanded by investors for CFs with similar risk characteristics = opportunity cost of capital

1 // Capital Budgeting - PV and the NPV Rule

Show the formula for:

the PV of a future CF to be received t periods from now

.

1 // Capital Budgeting - PV and the NPV Rule

Show the formula for:

the PV of a project with cash flows CF0, CF1, …, CFT

The PV of this cash-flow stream is simply the sum of the PVs of the individual cash flows.

1 // Capital Budgeting - PV and the NPV Rule

Show the formulas for:

PV of a cash flow equal to CF which starts next period and is received in each period forever, under a discount rate of r

AND

PV of a cash flow equal to CF which starts next period and grows forever with rate g, under a discount rate of r

.

1 // Capital Budgeting - PV and the NPV Rule

Show the formulas for:

PV of a cash flow stream that pays a fixed cash flow CF every year for a specified number of years T, under a discount rate of r

AND

PV of a cash flow stream that grows at a rate of g and for a specified number of years T, under a discount rate of r

.