Corporate Finance Part I Cost of Capital

Kasper Meisner Nielsen
Corporate Finance: Part I
Cost of Capital
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Corporate Finance: Part I
Cost of Capital
Download free eBooks at bookboon.com
3

Corporate Finance Part I: Cost of Capital
1
st
edition
© 2010
bookboon.com
ISBN 978-87-7681-568-4
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Corporate Finance Part I: Cost of Capital
4
Contents
Contents
1 Introduction 6
2 e Objective of the Firm 7
3 Present value and opportunity cost of capital 8
3.1 Compounded versus simple interest 8
3.2 Present value 8
3.3 Future value 9

3.4 Principle of value additivity 10
3.5 Net present value 10
3.6 Perpetuities and annuities 11
3.7 Nominal and real rates of interest 13
3.8 Valuing bonds using present value formulas 14
3.9 Valuing stocks using present value formulas 18
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Corporate Finance Part I: Cost of Capital
5
Contents
4 e net present value investment rule 21
5 Risk, return and opportunity cost of capital 24
5.1 Risk and risk premia 24
5.2 e eect of diversication on risk 26

5.3 Measuring market risk 28
5.4 Portfolio risk and return 29
5.5 Portfolio theory 32
5.6 Capital assets pricing model (CAPM) 35
5.7 Alternative asset pricing models 37
Index 39
360°
thinking
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