962113
Description
Mind Map by alex.walker, updated more than 1 year ago
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Created by alex.walker
about 11 years ago
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Valuation
- Financial
Management
Decisions
- Main Objective -
Maximising wealth
for owners
- Determining
value and
managing funds
- Value Creation
- Investment
Decisions
- Capital Allocation
- Capital Allocation
- Financing
Decisions
- Capital Structure
- Debt vs. Equity
- Working Capital
- Capital Structure
- Investment
Decisions
- Shareholders
Reward
- Dividend Decisions
- Dividend Decisions
- Main Objective -
Maximising wealth
for owners
- Creating
Value
- Buy assets
which generate
more cash they
they cost
- Sell bonds/stocks/other
financial instruments that
raise more cash than
they cost
- Buy assets
which generate
more cash they
they cost
- Implications of
using Cash
Flows
- Timing
- £1 today is worth
more than £1 received
next year
- £1 today is worth
more than £1 received
next year
- Risk
- Amount/Timings
of cash flows are
not known with
certainty
- Amount/Timings
of cash flows are
not known with
certainty
- Timing
- Present Value
- PV = FVt ÷ (1+r)
- FV = Future Value
- Future Value of
multi-period case = PV
(1+r)^t
- Future Value of
multi-period case = PV
(1+r)^t
- r = Investment
Discount Rate
- Interest rate used to
calculate present
value of future cash
flows
- Interest rate used to
calculate present
value of future cash
flows
- FV = Future Value
- Value today of a
future cash flow
- Reflects time value of
money, riskiness of
the asset and
inflation
- Market Value of
Asset = PV of all
future Cash flows
- NPV
- PV of cash flows
from asset or
investment
- Companies seek
to undertake
investment when
NPV>0
- PV of cash flows
from asset or
investment
- PV of common shares
- Shares have no maturity
- Shares have no maturity
- PV = FVt ÷ (1+r)
- Bonds
- Legally
binding debt
agreement
- Specifies size
and timing of
cash flow
payments
- Coupon payments
made at coupon rate,
annually or
semi-annually over life
of bond
- Bond matures
-> principal is
paid
- Coupon payments
made at coupon rate,
annually or
semi-annually over life
of bond
- Coupon rate
- If coupon rate = market
interest rate, bond sells
at face value
- If coupon rate < market
interest rate, bond sells at
a discount
- If coupon rate > market
interest rate, bond sells at a
premium
- If coupon rate = market
interest rate, bond sells
at face value
- Types of Bonds
- Treasury
- Zero coupon
- Floating rate, inflation linked
- Perpetual bonds
- Convertible Bonds
- Callable/puttable bonds
- Treasury
- Yield to Maturity
- Annualised
discount rate
for a bond
- Discount which market
is prepared to purchase
a bond's future cash
flows
- Discount which market
is prepared to purchase
a bond's future cash
flows
- IRR of the bond
- Annualised
discount rate
for a bond
- Legally
binding debt
agreement
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