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principles of corporate finance, by brealey myers, 7th editionchapter_09文档.ppt

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principles of corporate finance, by brealey myers, 7th editionchapter_09文档

Risk,DCF and CEQ Example Project A is expected to produce CF = $100 mil for each of three years. Given a risk free rate of 6%, a market premium of 8%, and beta of .75, what is the PV of the project? DEDUCTION FOR RISK Risk,DCF and CEQ Example Project A is expected to produce CF = $100 mil for each of three years. Given a risk free rate of 6%, a market premium of 8%, and beta of .75, what is the PV of the project?.. Now assume that the cash flows change, but are RISK FREE. What is the new PV? The difference between the 100 and the certainty equivalent (94.6) is 5.4%…this % can be considered the annual premium on a risky cash flow Risk,DCF and CEQ Example Project A is expected to produce CF = $100 mil for each of three years. Given a risk free rate of 6%, a market premium of 8%, and beta of .75, what is the PV of the project?.. Now assume that the cash flows change, but are RISK FREE. What is the new PV? * * 9- * McGraw Hill/Irwin Copyright ? 2003 by The McGraw-Hill Companies, Inc. All rights reserved Principles of Corporate Finance Seventh Edition Richard A. Brealey Stewart C. Myers Slides by Matthew Will Chapter 9 McGraw Hill/Irwin Copyright ? 2003 by The McGraw-Hill Companies, Inc. All rights reserved Capital Budgeting and Risk Topics Covered Company and Project Costs of Capital Measuring the Cost of Equity Capital Structure and COC Discount Rates for Intl. Projects Estimating Discount Rates Risk and DCF Company Cost of Capital A firm’s value can be stated as the sum of the value of its various assets Company Cost of Capital Company Cost of Capital A company’s cost of capital can be compared to the CAPM required return Required return Project Beta 1.26 Company Cost of Capital 13 5.5 0 SML Measuring Betas The SML shows the relationship between return and risk CAPM uses Beta as a proxy for risk Other methods can be employed to determine the slope of the SML and thus Beta Regression analysis can be used to find Beta Measuring Betas Dell Computer Slope d