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
Working-Capital Management Current assets cash, marketable securities, inventory accounts receivable Long- Term Assets equipment, buildings, land Which earn higher rates of return? Which help avoid risk of illiquidity?
• Meaning of Risk Management • Objectives of Risk Management • Steps in the RM Process • Benefits of Risk Management • Personal RM • Corporate RM – ERM (FMEA)
Corporate restructuring 1960s- Mergers of unrelated firms formed huge conglomerates 1980s-Investors purchased conglomerates and sold off the pieces as independent companies. 1990s- Strategic mergers of related firms to create synergies