2 concepts that enhance our understanding of risk... 1) Operating Leverage affects a firm's business risk. 2) Financial Leverage affects a firm's financial risk

0: What are SECURITIes? A: Financial assets that Investors purchase hoping to earn a high rate of return

Top Creators of shareholder value 1999 invested cost of MVA capital return capital Microsoft3282571095456.16%12.64 Gen elect285,320652981929911.92 Intel

Where we've been. Basic Skills:(Time value of money, Financial Statements) Investments: (Stocks, Bonds, Risk and Return) Corporate Finance: (The Investment Decision- Capital Budgeting)

Three Measures of a Project's Risk Project Standing Alone risk

Capital Budgeting: the process of planning for purchases of long-term assets. example Our firm must decide whether to purchase a new plastic molding machine for $127,000 How do we decide? Will the machine be profitable? Will our firm earn a high rate of return on the investment?

Capital Budgeting: the process of planning for purchases of long term assets。 ° example Suppose our firm must decide whether to purchase a new plastic molding machine for $125.000. How do we decide? will the machine be profitable? Will our firm earn a high rate of return on the investment?

Security valuation In general, the intrinsic value of an asset= the present value of the stream of expected cash flows discounted at an appropriate required rate of return

Characteristics of Bonds o Bonds pay fixed coupon ( interest) payments at fixed intervals(usually every 6 months)and pay the par value at maturity

Chapter 6: Objectives Inflation and rates of return How to measure risk (variance, standard deviation, beta) How to reduce risk (diversification) How to price risk (Security market line, CAPM)