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)
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?
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
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)
