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)
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
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?
