TABLE
OF CONTENTS v
Unit 5: Introduction to Capital Budgeting
(Continued)
Adjusting for Inflation...................................................................5-4
Practice Exercise 5.1 .............................................................................5-7
Net Present Value...................................................................................5-9
Present Value of Cash Flows ....................................................5-9
Net Present Value of Cash Flows ...........................................5-10
Practice Exercise 5.2 ...........................................................................5-13
Internal Rate of Return..........................................................................5-15
Adjusting NPV and IRR for Inflation.....................................................5-17
Other Methods for Making Investment Decisions..............................5-18
Payback Period ........................................................................5-18
Profitability Index (PI) ................................................................5-20
Practice Exercise 5.3 ...........................................................................5-23
Unit Summary........................................................................................5-27
Progress Check 5 .................................................................................5-29
Unit 6: Corporate Valuation Risk
Introduction to Units 6, 7, and 8 Corporate Valuation......................6-1
Introduction...............................................................................................6-3
Unit Objectives ........................................................................................6-3
Calculating Expected Cash Flows ........................................................6-4
Expected Return..........................................................................6-4
Expected Cash Flows ................................................................6-7
Practice Exercise 6.1 .............................................................................6-9
Measuring Risk .....................................................................................6-11
Variance.....................................................................................6-13
Standard Deviation...................................................................6-16
Summary....................................................................................6-18
Practice Exercise 6.2 ...........................................................................6-19
Portfolio Risk .........................................................................................6-21
Portfolio Diversification............................................................6-21
Systematic and Unsystematic Risk.........................................6-27