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Category: Business and Industry
Date Submitted: 10/23/2010 09:56 PM
Introduction
Many issues in Finance, but in the end what we want is to value some asset
Value = CF1 (1 + r)
n 1
+
CF2 (1 + r) .
2
+L+
CFn (1 + r) n
=∑
CFt r)
t
t =1 (1 +
To estimate an asset’s value, one estimates the cash flow for f each period t (CFt) the life of the asset ( ) and the h i d ), th lif f th t (n), d th appropriate discount rate (r)
© Weatherhead School of Management. Case Western Reserve University. 2009
WEATHERHEAD Bold Ideas. Lasting Impact.
1-1
Finance Boot Camp: Objectives
Value = CF1 (1 + r)
1
+
CF2 (1 + r)
2
+L+
CFn (1 + r) n
1. 1 Understand the concept and the mechanics of discounting 2. Determine the discount rate 3. Work out the concept of valuation for investment decisions
© Weatherhead School of Management. Case Western Reserve University. 2009
WEATHERHEAD Bold Ideas. Lasting Impact.
1-2
But There is More to Corporate Finance… Finance
Assets Liabilities
Investment decisions
In this boot camp we will deal solely with investment decisions. decisions Financing (long(long term and short-term) decisions are covered in BAFI 403.
Debt
Financing decisions Dividend policy decisions
Equity
Assets Liabilities
Current Fixed
Current LT debt Equity Eq it
Short-term financing g decisions
© Weatherhead School of Management. Case Western Reserve University. 2009
WEATHERHEAD Bold Ideas. Lasting Impact.
1-3
Now
Understand the concept and mechanics of discounting
How to take into consideration the time value of money?
© Weatherhead School of Management. Case Western Reserve University. 2009
WEATHERHEAD Bold Ideas. Lasting Impact.
1-4
Time Value of Money
What do you prefer, to have $1 prefer dollar today, or to receive $1 after one year?
$1 today!
© Weatherhead School of Management. Case Western Reserve University. 2009
WEATHERHEAD Bold Ideas. Lasting Impact.
1-5
Future Value
You deposit $100 in a bank paying 5%...