Principles of Corporate Finance

Incentive Issues w Monitoring - Reviewing the actions of managers and providing incentives to maximize shareholder value. w Free ...

Residual Income & EVA w Techniques for overcoming errors in accounting measurements of performance. w Emphasizes NPV concept ...

Residual Income & EVA Income Sales 550 COGS 275 Selling, G&A 75 200 taxes @ 35% 70 Net Income $130 Assets Net W.C. 80 Pr ...

Residual Income & EVA Quayle Quayle City City Subduction Subduction Plant ($mil)Plant ($mil) . 13 1 , 000 ROI =^130 = Given ...

Residual Income & EVA Residual Income or EVA = Net Dollar return after deducting the cost of capital. Income Earned - [Cost ...

Residual Income & EVA Quayle Quayle City City Subduction Subduction Plant ($mil)Plant ($mil) Given COC = 12% million EVA $ 1 ...

Economic Profit Economic Profit = capital invested multiplied by the spread between return on investment and the cost of capital ...

Economic Profit $10million (.13-.12) 1,000 ( ) Capital Invested = = × EP = ROI − r × © EVA is copyrighted by Stern-Stewart Consu ...

Message of EVA Managers are motivated to only invest in projects that earn more than they cost. EVA makes cost of capital vi ...

EVA of US firms - 1997 Walt Disney - 347 30 , 702 11. 0 12. 6 UAL 298 13 , 420 9. 8 7. 2 Safeway 335 4 , 963 15. 7 8. 5 Philip M ...

Accounting Measurements 0 1 ( 1 0 ) beginning price Rate of return cash^ receipts change^ in^ price P = C + P − P = + ...

Accounting Measurements 0 1 ( 1 0 ) beginning price Rate of return cash^ receipts change^ in^ price P = C + P − P = + Economic i ...

Accounting Measurements ECONOMIC ACCOUNTING Cash flow + Cash flow + change in PV = change in book value = Cash flow - Cash flow ...

Nodhead Store Forecastes YEAR 1 2 3 4 5 6 Cash flow 100 200 250 298 298 298 PV at start of year (r = 10%)^10001000901741517271 P ...

Nodhead Book Income & ROI YEAR 1 2 3 4 5 6 Cash flow 100 200 250 298 298 298 BV at start of year, strt line depn 1000 833 66 ...

u Corporate Financing and the Six Lessons of Market Efficiency Principles of Corporate Finance Brealey and Myers Sixth Edition C ...

Topics Covered w We Always Come Back to NPV w What is an Efficient Market? ËRandom Walk w Efficient Market Theory w The Evidence ...

Return to NPV w NPV employs discount rates. w These discount rates are risk adjusted. w The risk adjustment is a byproduct of ma ...

Return to NPV Example The government is lending you $100,000 for 10 years at 3% and only requiring interest payments prior to ma ...

Return to NPV Example The government is lending you $100,000 for 10 years at 3% and only requiring interest payments prior to ma ...