Brealey−Meyers: Principles of Corporate Finance, 7th Edition - Chapter 20 docx

... an up-to-date risk-free interest rate. Brealey−Meyers: Principles of Corporate Finance, Seventh Edition VI. Options 20. Understanding Options © The McGraw−Hill Companies, 200 3 CHAPTER 20 Understanding ... the payoff line in position diagrams, as in the bottom row of Figure 20. 5. Borrowing lowers the payoff line. Brealey−Meyers: Principles of Corporate Finance,...

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... satisfactory way of defining the true rate of re- turn of a long-lived asset. The best available concept is the so-called discounted- cash-flow (DCF) rate of return or internal rate of return (IRR). ... internal rates of return on the two projects tell us that at a dis- count rate of 20 percent H has a zero NPV (IRR ϭ 20 percent) and G has a positive Brealey−Meyers: Princ...

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... ϭ 200 ($ millions) Discounting these cash flows at 20 percent gives us NPV ϭϪ1,000 ϩ a 5 tϭ1 300 11 .202 t ϩ 1 11 .202 5 a 200 .20 bϭ $299 million Brealey−Meyers: Principles of Corporate Finance, ... is 40 percent of the difference between salvage value and depreciated investment. 4. The cost of capital is 20 percent. a. What is the value of a one-year-old plant...

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... “Bookbuilding and Strategic Allocation,” Journal of Finance 56 (Decem- ber 200 1), pp. 2337–2369. Brealey−Meyers: Principles of Corporate Finance, Seventh Edition IV. Financial Decisions and Market ... Description of Capital Stock The Company’s authorized capital stock consists of 10,000,000 shares of voting Common Stock. Brealey−Meyers: Principles of Corporate...

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... what causes them. Value of firm ϭ value if all-equity-financed ϩ PV1tax shield2Ϫ PV 1costs of financial 1distress2 Brealey−Meyers: Principles of Corporate Finance, Seventh Edition V. Dividend Policy ... stream of cash flows of $28 per year. The risk of these flows is likely to be less than the risk of the operating assets of L. The tax shields Brealey−Meyers: Prin...

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... of put ϭ value of call Ϫ value of stock ϩ PV1exercise price2 Brealey−Meyers: Principles of Corporate Finance, Seventh Edition VI. Options 21. Valuing Options © The McGraw−Hill Companies, 200 3 but ... each tree we show a histogram of the possible six-month price changes, assuming investors are risk- neutral. Brealey−Meyers: Principles of Corporate Finance, Seve...

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... duration of the 1-year debt is 1 year, and the duration of the 6-year debt is 4.6 years. The dura- tion of the package of 1- and 6-year debt is a weighted average of the durations of the individual ... so on. Brealey−Meyers: Principles of Corporate Finance, Seventh Edition VIII. Risk Management 27. Managing Risk © The McGraw−Hill Companies, 200 3 CHAPTER TWENTY-...

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... all sources of financing. Brealey−Meyers: Principles of Corporate Finance, Seventh Edition I. Value 1. Finance and the Financial Manager © The McGraw−Hill Companies, 200 3 Most well-known corporations ... rate of tax on profits paid out as dividends. Brealey−Meyers: Principles of Corporate Finance, Seventh Edition I. Value 1. Finance and the Financial Manager ©...

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... and Ethics: The Case of Salomon Broth- ers,” Journal of Applied Corporate Finance 5 (Summer 1992), pp. 23–28. Brealey−Meyers: Principles of Corporate Finance, Seventh Edition I. Value 2. Present ... McGraw−Hill Companies, 200 3 CHAPTER TWO 12 P R E S E N T V A L U E A N D T H E OPPORTUNITY COST OF CAPITAL Brealey−Meyers: Principles of Corporate Finance, Seve...

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... from 1926 to 200 0. Source: Ibbotson Associates, Inc., Stocks, Bonds, Bills, and Inflation, 200 1 Yearbook, Chicago, 200 1. Brealey−Meyers: Principles of Corporate Finance, Seventh Edition I. Value ... approximation to the NPV of frequent payments. Brealey−Meyers: Principles of Corporate Finance, Seventh Edition I. Value 3. How to Calculate Present Values © The...

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