Risk and net Present value

Table of Contents

1.1 Introduction

1.2 NET PRESENT VALUE (NPV)

1.3 ADVANTAGES OF NPV

1.4 DISADVANTAGES OF NPV

1.5 PAYBACK

1.6 Arguments in favour of payback

1.7 Debt vs candour

1.8 Equity equals Ownership (Share Profits and Control)

1.9 Debt: Money You Owe

2.0 ADVANTAGES OF DEBT COMPARED TO EQUITY

2.1 DISADVANTAGES OF DEBT COMPARED TO EQUITY

2.2 Managerial Ownership and delegation Costs

2.3 Concentrated Ownership and Agency Costs

2.4 Debt and Agency Costs

2.5 PECKING show supposition OVERVIEW

2.6 CAPITAL MARKET TREATMENT OF NEW SECURITY ISSUES

2.7 HOW PECKING ORDER IS SUPERIOR TO THE TRADE-OFF MODEL

2.8 LIMITATIONS OF PECKING ORDER THEORY

2.9 Hedging

3.0 The Hedging Problem

3.1 Hedging Objectives

3.2 bump Engineering

3.3 Controlling the jeopardy

3.4 Profit after tax (PAIT)

3.5 Diversification

3.6 Beta

3.7 Advantages of Beta

3.8 Disadvantages of Beta

3.9 Re-Assessing Risk

4.0 Bonds and Debentures

4.1 Interest Rates.

4.2 run and Demand.

4.3 Preference Shareholders

4.4 Portfolio theory

4.5 Options

1.1Introduction

Characteristically, a decision to invest in a capital project involves a with child(p)ly irreversible commission of resources that is generally subject to a significant degree of risk.



such(prenominal) decisions have far-reaching effects on a companys profitability and tractability over the long term, thus requiring that they be part of a carefully developed strategy that is based on trusty appraisal and forecasting procedures.

In order to handle these decisions, firms have to even up an assessment of the size of the outflows and inflows of funds, the life span of the investment, the degree of risk attached and the cost of obtaining funds.

One of the most important steps in the capital bud undertakeing cycle is working out if the benefits of investing large capital sums outweigh the costs of these investments. The range of methods that business organisations determination can be categorised in one...

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