How Firms Organize Their Investment Process Some “What If” Questions Sensitivity Analysis Break Even Analysis Flexibility in Capital Budgeting Decision Trees Options

Topics Covered Net Present value ther Investment Criteria Project Interactions Capital Rationing IrwinMcGraw-Hill The McGraw-Hill Companies, Inc., 2001

Geothermal's Cost of Capital Weighted Average Cost of Capital (WACC) Capital Structure Required Rates of Return Big Oil's WACC SInterpreting WACC Flotation Costs

Common Stock Preferred Stock Corporate Debt Convertible Securities Patterns of Corporate Financing Irwvin/McGraw-Hill

When there are no taxes and capital markets function well, it makes no difference whether the firm borrows or individual shareholders borrow. Therefore, the market value of a company does not depend on its capital structure

Venture Capital The Initial Public Offering The Underwriters General Cash Offers The Private Placement

SInvestment Decision vs. Financing Decision OMarket Efficiency →Weak form efficiency →Semi -strong- form efficiency >Strong form efficiency OLessons of Market Efficiency Irwvin/McGraw-Hill

Market Portfolio-Portfolio of all assets in the economy. In practice a broad stock marke index, such as the S&P Composite, is used to represent the market. Beta- Sensitivity of a stock's return to the return on the market portfolio

Organizing a Business The role of The Financial Manager Financial Markets Who Is The Financial Manager Corporate Goals& Incentives Value Maximization Irwvin/McGraw-Hill The McGraw-Hill Companies

Investment Decision vs. Financing Decision Market Efficiency Weak form efficiency Semi- -strong form efficiency Strong form efficiency Lessons of Market Efficiency