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

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

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

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

Call Option Right to buy an asset at a specified exercise price on or before the exercise date. Put Option Right to sell an asset at a specified exercise price on or before the exercise date

How Dividends are Paid How Do Companies Decide on Dividend Payments Why Dividend Policy Should Not Matter Why Dividends May Increase Firm Value Why Dividends May Reduce Firm Value

Bond Characteristics reading the financial pages Bond Prices and Yields Bond prices and interest rates YTM vs. current yield Rate of Return Interest Rate Risk The Yield Curve Nominal and Real Rates of Interest Default Risk

Stocks and the Stock Market Book Values, Liquidation Values and Market Values Valuing Common Stocks Simplifying the Dividend Discount Model Growth Stocks and Income Stocks

Future values Present values Multiple Cash Flows Perpetuities and Annuities Inflation Time value Effective Annual Interest Rate