Corporate Finance
220 Corporate Finance Step 1 Construct an ‘uncertainty profile’ for each key input factor like market size, market share, pric ...
Risk Analysis in Capital Investments 221 Step 5 The risk profile for the decision rule could be plotted using the result obtai ...
222 Corporate Finance We can perform a risk analysis in several ways, but one method involves building a spreadsheet model. A ...
Risk Analysis in Capital Investments 223 On rolling a dice, we know that 1, 2, 3, 4, 5, or 6 will come up, but we do not know ...
224 Corporate Finance Certainty is the percent chance that a particular forecast value will fall within a specified range. For ...
Risk Analysis in Capital Investments 225 In this case, we know that ‘Marketing Costs’ (cell C6) can vary between $14,000,000 a ...
226 Corporate Finance We can define multiple assumptions and forecasts. Once that is done, the Crystal Ball command or toolbar ...
Risk Analysis in Capital Investments 227 Return expected by equity investors = Risk free rate + Risk premium = Rf + β [E (Rm) ...
228 Corporate Finance Pure play βL D/V A 1.1 0.3 B 0.9 0.25 C 0.95 0.35 D 1 0.3 The asset betas for the pure plays are: Firm A ...
Risk Analysis in Capital Investments 229 The discount rate used in capital budgeting has the time value of money and an adjust ...
230 Corporate Finance for a domestic project, it might raise it to 20 percent for foreign projects. Such adjustments, obviousl ...
Risk Analysis in Capital Investments 231 The resulting beta estimate would be biased. The investor, in this case, is a multina ...
232 Corporate Finance Country premium = 1.75 × 3.2 = 5.6 percent Cost of equity for the project = 5.1 + 6.1 + 5.6 percent = 16 ...
Risk Analysis in Capital Investments 233 Thus, the discount rate for an Indian company that pays 3 percent over treasuries, wh ...
234 Corporate Finance APPENDIX 1: ESTIMATING DISCOUNT RATES IN EMERGING MARKETS In recent years, a great deal of research has ...
Risk Analysis in Capital Investments 235 Premium = Rs + (Sb/Su)Eu So cost of equity R= Rus + [Rs + (Sb/Su)Eu] The components o ...
236 Corporate Finance Credit rating Expected return Country (Sep 1995) percent Australia 71.2 18.1 Belgium 79.2 15.9 Brazil 34 ...
Risk Analysis in Capital Investments 237 How would you draw the decision tree for the problem? In trying to decide whether to ...
238 Corporate Finance Exhibit 1 Forecast of free cash flow ($ ‘000) 1998 1999 2000 2001 2002 Argentina 6,930 7,117 7,331 7,617 ...
A Real Option’s Perspective of Capital Budgeting 239 Chapter 12 12. A Real Option’s Perspective of Capital Budgeting of Capita ...
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