Principles of Corporate Finance, by Richard A. Brealey, Stewart C. Myers, McGraw Hill. Any edition from the 5 th edition onwards is fine. Students are advised to. Principles of. Corporate Finance Global Edition. TENTH EDITION. Richard A. Brealey. Professor of Finance. London Business School. Stewart G. Myers. Corporate Financial Strategy In Smes - Iaeng abstract—company strategy expresses a basic idea of how to reach company objectives. a whole range of models.
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Foundations of Financial Management. Thirteenth Edition. Brealey, Myers, and Allen. Principles of Corporate Finance. Tenth Edition. Brealey. Please see the Preface Corporate Finance for details. Corporate Finance Brealey, Myers, and Allen Ninth Edition Principles of Corporate Finance International. Power up your mind: learn faster, work smarter / Bill Lucas. p. cm. ways in which you can power up your mind and impr.
EPS is divided between dividends and retained earnings, depending on the dividend payout ratio. Define perpetuity same cash flow each year forever and give an example of perpetuity. Normally dividends are paid quarterly, so it would be more realistic to assume receipt at the middle of the year. Using numerical examples it shows how to calculate PV and NPV of a series of cash flows over a number of periods years. It was initially published in October and now is available in its 12th edition.
It is downwardly sloping, which can confuse students, so it may be necessary to spend time explaining the concept. Slide 11 Explain how the present value concept discussed earlier is useful in valuing assets. Explain sign conventions for cash flows. Slide 13 Explain each variable in the equation. It is easy to tell the students that all present values come at a cost.
That cost is the initial investment. This may help them easily transition from present value to net present value. Negative NPVs lower the value of a firm. Slide 14 The concept of risk is introduced here. Briefly explain the idea of risk lottery vs. Generally, investors do not like risk.
In order to induce the investors invest in risky projects, a higher rate of return is needed. Higher rate of return causes lower PVs. Explain the relationship between discount rates and present values. Higher the discount rate, lower the present value. Higher the discount rate, the lower the net present value.
A very powerful financial decision-making rule. It looks simple but can get complicated quickly. Make sure that students understand this rule clearly. Slide 18 This slide explains the rate of return rule.
Slide 19 Multiple cash flows occurring at different time periods can be evaluated using the DCF formula. It is a simple extension of the NPV formula, but can intimidate students because of the extra equations. Show how it is a minor extension of the prior Basic Point Value formula. Slide 20 The graphic presentation of the net present value of multiple cash flows or sequential cash flows is given here.
Here we extend the concept of PV to a series of cash flows by applying value-additive property of present values. These cash flows can be positive cash inflows or negative cash outflows. We merely add the initial cost to make it NPV. Slide 21 Depending on the type of cash flow you can use the formulas to simplify the calculations. There are formulas that can be used for finding the present values for cash flows with a pattern; for example perpetuities and annuities.
Define perpetuity same cash flow each year forever and give an example of perpetuity. Slide 22 Introduce the perpetuity concept as one in which you earn money forever.
In doing so, you can easily demonstrate the return an investor earns. Slide 23 Now, manipulate the formula to get the value of the infinite cash flow given a discount rate. Provide the formula for calculating the present value perpetuity. This formula is obtained using an algebraic technique; sum of an infinite geometric series.
Using the formula will simplify the calculations. Slide 25 The same example is used as in the previous slide, except the modification of time is added. Show the students how the value is reduced if you get the money later. This reinforces the time value of money concepts introduced earlier. Slide 26 This slide provides the formula for the present value of an annuity. An annuity can be thought of as the difference between two perpetuities starting at different times.
A slight derivation is presented, can be ignored if it is beyond the scope of the course, with no harm in understanding the broader concept. Take some time to explain the variables.
If a financial calculator is to be used in class, there is no need to cover the use in detail. Slide 28 This slide is a more comprehensive example of an annuity and its relationship to perpetuities.
Slide 29 An asset that pays a fixed sum each period for a specified number of periods is called an annuity. For example: In addition to the formula, using a financial calculator: Slide 30 The state lottery pays the jackpot prize in 30 annual installments.
If Internet access is available, it might be helpful to pull up an actual national lottery and determine how the lump sum payout was determined. The instructor should first calculate the internal rate of return and provided as a given number to the students.
Slide 32 This is an example of the Future Value of an annuity.
It is highly recommended this example also be provided with a financial calculator. Slide 33 This is another example of an annuity. In this case we are determining the payment necessary on a loan.
Slide 34 Has was done for the present value of an annuity earlier, this slide presents the future value of an annuity. Slide 35 Continuing the theme of the prior slide, I hear we have an example of the future value of an annuity. It is useful and should be explained as a formula the students will use often.
Slide 39 Go over each definition: In reality, students are more likely to use the spreadsheet or financial calculator. If students are comfortable with the use of a financial calculator, use the following method as a substitute for the formula. Using the financial calculator: By dropping the -1 the answer is arrived at of KEY TERMS AND CONCEPTS Present value, discount factor, discount rate, hurdle rate, opportunity cost of capital, net present value, net present value rule, rate of return rule, discounted cash flow, perpetuity, growing perpetuity, annuity, growing annuity, compound interest, simple interest, continuous compounding, annual percentage rate, effective annual rate.
December White, M. Weston, and K. Benninga, S. Financial Modeling. The MIT Press, Brealey, S.
Myers and F. Allen What is Reeby Sports worth per share? We will value the company using George Reeby's forecasts. The spreadsheet accompanying this solution sets out a forecast in the same general format as Table 4. Historical results from to are also shown.
EPS is divided between dividends and retained earnings, depending on the dividend payout ratio. BVPS grows as retained earnings are reinvested. Retained earnings are determined by dividend payout. The spreadsheet allows you to vary ROE and the dividend payout ratio separately for and for As the growth rate approaches the cost of capital, the DCF formula explodes.
If the growth rate exceeds the cost of capital, the DCF formula says stock price is negative, which is impossible. Normally dividends are paid quarterly, so it would be more realistic to assume receipt at the middle of the year.
This makes sense, since the value of a firm should not depend on the investment horizon chosen to calculate PV. If you calculate a value that does depend on the horizon, you have made a mistake. George Reeby has also identified a "comparable," Molly Sports. You can check by changing ROE for from.
The ROE for and is hard-wired at. Do you think these inputs are reasonable? Future Value Amount to which an investment will grow after earning interest Given any variables in the equation, you can solve for the remaining variable.
Also, you can reverse the prior example. Valuing an Office Building Step 1: Should we do the project? These tools allow us to cut through the calculations quickly. Shortcuts Perpetuity - Financial concept in which a cash flow is theoretically received forever.
Return cash flow present value r C PV PV of cash flow cash flow PV0 discount C1 r rate Short Cuts Annuity - An asset that pays a fixed sum each year for a specified number of years. If interest rates are 3. Other discussed topics include mergers and acquisitions , principal—agent problems , credit risk, working capital management, etc.
The book concludes with a discussion on the current limitations of the corporate finance theory. From Wikipedia, the free encyclopedia. Principles of Corporate Finance Hardcover, 12th edition. CS1 maint: Brealey, Stewart C.
Retrieved Corporate finance and investment banking. Debt restructuring Debtor-in-possession financing Financial sponsor Leveraged buyout Leveraged recapitalization High-yield debt Private equity Project finance. List of investment banks Outline of finance.
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