# Corporate Finance

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FFinance: principles of Finance (part 1)
Financial markets and management
Valuation of investment
Value of investment = value of investment’s cash flows * Concept of present value: value of investment = PV(CF°, CF1, CF2…)
Important characteristics of cash flows: * Time: for the same amount of money, now is preferred to tomorrow * Uncertainty: risk and return (1 for sure is preferred to half a chance to get 2)
Opportunity cost of capital:
Definition: opportunity cost of capital is the expected rate of return offered by equivalent investments in financial markets
Net present value (investment rule)
Definition: NPV of an investment is the current market value of its cash flows * accept project if its NPV is positive
Arbitrage pricing
An arbitrage is an investment opportunity such that: * It requires no positive investment today but yields positive payoffs in the future (type 1) * Yields positive payoff today without requiring positive payment in the future (type 2)
Present value
Valuing cash flows
The future value of a cash flow of C dollars in T years when invested at a rate-of-return r is:
FV(C) = \$C * (1+ r)T
We can deduce of this the present value of an amount of money received in T years:
PV(C) = \$C(1+r)T=\$C*[discount factor at r, maturity T]
Discount factor at r, maturity T = 1(1+r)T
Project evaluation
{Cfi, I ϵ [0;T]}: NPV = ∑ Cfi(1+r)i * Positive (<0) NPV projects increases (decrease) the value of a firm by the amount of the NPV * NPV rule: undertake all projects that has a positive NPV
Shortcuts to Special Cash Flows
Recall: PV (cash flows) = 1T Cfi(1+r)i COMMENCE A 1 OU 0???
Perpetuities:
Definition: constant stream of cash flows, C, that occur every unit period and continues forever (such as coupon bonds)
In that case we have: PV = Cr
Growing perpetuities
Definition: stream of cash flows,...

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...Chapter 7: Chapter 8: Chapter 9: Chapter 10: Chapter 11: Chapter 12: Chapter 13: Chapter 14: Chapter 15: Chapter 16: Appendix 16B: Chapter 17: Chapter 18: Chapter 19: Chapter 20: Chapter 21: Chapter 22: Chapter 23: Chapter 24: Chapter 25: Chapter 26: Chapter 27: Chapter 28: Chapter 29: Chapter 30: Chapter 31: Answers to End-of-Chapter Problems Accounting Statements and Cash Flow ................................................................... Financial Planning and Growth ............................................................................... Net Present Value .................................................................................................... Net Present Value: First Principles of Finance ........................................................ How to Value Bonds and Stocks ............................................................................. The Term Structure of Interest Rates, Spot Rates, and Yields to Maturity ............. Some Alternative Investment Rules......................................................................... Net Present Value and Capital Budgeting ............................................................... Risk Analysis, Real Options, and Capital Budgeting .............................................. Capital Market Theory: An Overview ..................................................................... Return and Risk: The Capital-Asset-Pricing Model (CAPM)......

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