Capital Cash Flows: A Simple Approach to Valuing Risky Cash Flows Richard S. Ruback* This paper presents the Capital Cash Flow (CCF) method for valuing risky cash flows. I show that the CCF method is equivalent to discounting Free Cash Flows (FCF) by the weighted average cost of capital. Because the interest tax shields are included in the cash flows‚ the CCF approach is easier to apply whenever debt is forecasted in levels instead of as a percent of total enterprise value. The CCF method retains
Premium Discounted cash flow Cash flow Weighted average cost of capital
expected return on a risky asset depends only on that asset’s nondiversifiable risk. a. Efficient Markets Hypothesis (EMH) b. systematic risk principle c. Open Markets Theorem d. Law of One Price e. principle of diversification BETA COEFFICIENT 7. The amount
Premium Investment
However‚ his theory did not develop a practical means to assess how various holdings operate together‚ or correlate. Sharpe took Markowitz ’s theoretical work and greatly simplified it by connecting investment risk and reward to a single risk factor (beta) (Burton‚ 1998). With the publication of his 1963 dissertation A Simplified Model of Portfolio Analysis‚ Sharpe introduced the world to the Capital Asset Pricing Model (CAPM). Today‚ CAPM has become an integral part of investment theory and is used
Premium
Chapter 6. Ch 06 P14 Build a Model a. Use the data given to calculate annual returns for Bartman‚ Reynolds‚ and the Market Index‚ and then calculate average returns over the five-year period. (Hint: Remember‚ returns are calculated by subtracting the beginning price from the ending price to get the capital gain or loss‚ adding the dividend to the capital gain or loss‚ and dividing the result by the beginning price. Assume that dividends are already included in the index. Also‚ you cannot
Premium Standard deviation Investment Rate of return
corporation’s WACC. 3) What is the Weighted Average Cost of Capital for Marriott Corporation? In order to calculate the WACC for Marriott’s Corporation I’m going to use the following formulas: 1. Weighted Average Cost of Capital: 2. Levered Beta: Marriott’s structure: D= 60% E= 40% Marriott’s corporate tax: Tc= 175.9 / 398.9 Tc= 0.441 Marriott’s Pre-tax cost of debt: Debt rate premium above government= 1.30% U.S. Government
Premium Marketing Hotel Hotels
assets risk that is attributable to firm specific random causes. False 14)The beta of a portfolio is a function of the standard deviations of the individual securities in the portfolio the proportion of the portfolio invested in those securities and the correlation between the return of those securities False 15War‚ inflation and the condion of the foreign markets are all example of Nondiversifiable risk 16A beta coefficient of 1 represents an asset that (a) is more responsive than the market
Premium Risk Investment Finance
Part1 7. Why are the following “effects” considered efficient market anomalies? Are there rational explanations for any of these effects? a. P/E effect. P/E effect can be considered as efficient market anomalies that can’t be explained by CAPM. If two firms have the same expected earnings‚ the riskier stock will sell at a lower price and lower P/E ratio. Thus the low P/E stock will have higher expected returns. P/E acts as a useful additional descriptor of risk‚ and will be associated with
Premium Stock market Fundamental analysis
of the APC mutations occur. This region is located between codons 1284 and 1580. (Half‚ et. al‚ 2009). As mentioned before‚ the APC gene produces a protein called the APC protein. The APC protein binds to the Beta-Catenin to prevent it from interacting with proliferation genes. However‚ if Beta-Catenin is bound to the mutated or nonfunctional APC protein then it will be able to accumulate and allow excessive proliferation of the colonic epithelial cells‚ which results in the formation of polyps and
Premium DNA Cancer Gene
Debt rate premium Maturity Rate(%) 30 – year 8.95 10 – year 8.72 Risk free return = 8.95% Market risk = 9.90% Rd = (0.0895+0.0872+0.0872)/3 + 0.013 = 0.101 Re = Rf +(Rm – Rf) β Estimating Beta : Beta of the firm can be calculated by first finding the beta unleveraged value. βu= βL /
Premium Finance Stock Economics
green line. P8-18 Graphical Derivation of Beta c) Looking at the graph we can see that the best-fit line of returns for Asset B is steeper (has greater slope) than Asset A The slopes of these lines are the betas for each asset: 2.61 for Asset B and 1.48 for Asset A. The greater beta value of Asset B signifies that it is more responsive to market factors and therefore makes it more risky than Asset A. P8-20 Interpreting Beta a. A 15% increase in market return would
Premium