H2, (met C0 vaak negatief) Two equivalent decision rules for capital investment: Net present value rule: accept investments that have positive net present values Rate-of-return-rule



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H2

, (met C0 vaak negatief)

Two equivalent decision rules for capital investment:



  • Net present value rule: accept investments that have positive net present values

  • Rate-of-return-rule: Accept investments that offer rates of return in excess of their opportunity costs of capital.

H3

Present value of growing perpetuity(met g de verwachte groei en r het discontopercentage.)



(met DF de discount factor voor aantal periodes t)

Annuity factor =

PV=C*Annuity factor

DCF (Discounted cash flow) formula:



Bij betaling C aan eind ieder jaar:

Bij betaling C aan begin ieder jaar:

Bij continue betaling C per jaar: reken eerst r uit door:

1 dollar geïnvesteerd met een contiously compounded rate of r, zal groeien tot er. Aan het einde van t jaren zal het groeien tot ert. Nadat r gevonden is, gebruik maken van


Compounded annualy:

Compounded semi-annually:

Compounded contiously: ert

Real cash flow nominal cash flow inflation rate





H4

The cash payoff to owners of common stocks comes in two forms:



  1. cash dividends and

  2. capital gains or losses

Stock prices:


of ook
Expected return = r =

(of ) met g de verwachte groei en r het discontopercentage.

Plowback ratio=1-payout ratio = (EPS is earnings per share)


Return on Equity = ROE =

Dividend growth rate=g=Plowback ratio*ROE=



(met PVGO the present value of growth opportunities)
Earnings-price ratio, therefore equals:


Free Cash Flow (FCF) is the amount of cash that a firm can pay out to investors after paying for all investments necessary for growth.
H14

Par value =


Gemiddelde prijs waarvoor aandelen verkocht zijn:

Aantal aandelen wat is teruggekocht: “in issue” – “outstanding”

Prijs teruggekochte aandelen = Treasury shares / aantal wat is teruggekocht
Net common equity =

Common stock + Additional Paid in Capital + Retained Earnings + Treasury shares



H15

Why are the costs of debt issues less than those of equity issues?



  • Easier, cheaper issuing process. Less risk to investors. Less risk of initial mispricing, hence less risk for the underwriters.


H29

Net working capital = current assets – current liabilities


Dupont system:

=sales-to-assets-ratioprofit margin

= leverage ratio x sales-to-assets-ratio x profit margin x “debt burden”








H32

Altman’s discriminant analysis:



  • Z<1.2  predicted to go bankrupt

  • 1.2 < Z < 2.9  hovering in gray area

Five steps in credit management:



  1. Establish normal terms of sale

  2. Decide the form of the contract with your customer

  3. Assess each customer’s creditworthness

  4. Establish sensible credit limits

  5. Collect

Some of the most important ratios with regard to credit management to consider are:



  1. Measures of leverage: debt ratio, times-interest-earned

  2. Measures of liquidity: cash ratio, quick ratio

  3. Measures of profitability: return on assets

  4. Measures of efficiency: especially important is the average collection period.

  5. Market-value ratios: such as the market-to-book ratio

Identifying the least informative ratios depends on the circumstances. However, some points to note in this regard are:



  1. Efficiency ratios are often difficult to interpret.

  2. Liquidity ratios may be misleading in some circumstances, for example, if a company has an unused line of credit.

  3. A high price-earning ratio might be the result of temporarily low earnings.


H33


Cash acquisition:

Cost = Cash Paid – PVB


Stock acquisition:

Cost = NxPAB - PVB

Met PAB de prijs per aandeel NADAT de merger aangekondigd is.
NPV = gain – cost
Two reasons why sellers earn higher returns:


  1. Buying firms are typically larger than selling firms

  2. The competition among potential bidders


H34

Motives for privatization:



  1. Increased efficiency

  2. Share ownership

  3. Revenue for the government




  • In the U.S., the largest shareholders of corporations are financial institutions. However, since ownership is usually widely dispersed, effective control often rests with management. In many countries outside the U.S., families and governments often have large equity stakes.

  • Top managers in Germany are more likely to balance the interests of all stakeholders (rather than just those of shareholders), but poor performance can still result in management turnover.

  • Carve-out or spin-off of a division improves incentives for the division’s managers. If the businesses are independent, it is easier to measure the performance of the division’s managers.

  • The limited life of a private-equity partnership reassures the limited partners that the cash flow will not be reinvested in a wasteful manner. It also tends to ensure that partnerships focus on opportunities to reorganize poorly performing businesses and to provide them with new management before selling them off.

  • The remuneration package for the general partners typically includes a 20% carried interest. This is equivalent to a call option on the partnership’s value and, as is the case for all options, this option is more valuable when the value of the assets is highly variable.




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