Full Course Summary of advanced Finance course in a later stage of the Bachelor. Mostly material on equity valuation, debt vs. equity financing and asset pricing such as CAPM as well as derivatives and real options.
Forward P/E Ratio based on expected Earnings in the next 12 months
Most useful comparable = EV/Sales
Efficient market Hypothesis
= relevant information is quickly (almost instantly) and correctly incorporated into the prices of
securities
Securities are priced based on their future cash flows
Securities with equivalent risk have the same expected return
Implications for Corporate Managers:
1) Focus on NPV and Free Cash Flow
2) Focus on free cash flows and not accounting earnings
With efficient markets, accounting decisions don’t always affect value of the firm
3) Use financial transactions to fund investment (liquidity provided by financial markets)
,Chapter 12: Estimating the cost of Capital
Equity cost of capital rule of thumb → 𝑟𝐸 = 𝐷𝑖𝑣. 𝑌𝑖𝑒𝑙𝑑 + 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐺𝑎𝑖𝑛
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