Finance at ZHAW - Zürcher Hochschule für Angewandte Wissenschaften

Flashcards and summaries for Finance at the ZHAW - Zürcher Hochschule für Angewandte Wissenschaften

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Exemplary flashcards for Finance at the ZHAW - Zürcher Hochschule für Angewandte Wissenschaften on StudySmarter:

What to do if security is underpriced?

Exemplary flashcards for Finance at the ZHAW - Zürcher Hochschule für Angewandte Wissenschaften on StudySmarter:

Price (security)

Exemplary flashcards for Finance at the ZHAW - Zürcher Hochschule für Angewandte Wissenschaften on StudySmarter:

In a normal Market, what is the NPV of buying or selling security and why?

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Exemplary flashcards for Finance at the ZHAW - Zürcher Hochschule für Angewandte Wissenschaften on StudySmarter:

Seperation Principle

Exemplary flashcards for Finance at the ZHAW - Zürcher Hochschule für Angewandte Wissenschaften on StudySmarter:

Value Additivity

Exemplary flashcards for Finance at the ZHAW - Zürcher Hochschule für Angewandte Wissenschaften on StudySmarter:

How to maximize value of entire firm?

Exemplary flashcards for Finance at the ZHAW - Zürcher Hochschule für Angewandte Wissenschaften on StudySmarter:

Mutually Exclusive Projects

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Exemplary flashcards for Finance at the ZHAW - Zürcher Hochschule für Angewandte Wissenschaften on StudySmarter:

Shortcomings of Incremental IRR

Exemplary flashcards for Finance at the ZHAW - Zürcher Hochschule für Angewandte Wissenschaften on StudySmarter:

Shortcomings of Profitability Index

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Profitable Growth

Exemplary flashcards for Finance at the ZHAW - Zürcher Hochschule für Angewandte Wissenschaften on StudySmarter:

Limitations of Dividend-Discount Model

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Exemplary flashcards for Finance at the ZHAW - Zürcher Hochschule für Angewandte Wissenschaften on StudySmarter:

what to do when security is overpriced?

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Exemplary flashcards for Finance at the ZHAW - Zürcher Hochschule für Angewandte Wissenschaften on StudySmarter:

Finance

What to do if security is underpriced?

Buy

Finance

Price (security)

PV (All cash flows paid by security)

Finance

In a normal Market, what is the NPV of buying or selling security and why?

NPV= 0


When securities trade at no-arbitrage prices, then investing in securities is a zero NPV investment. Thus, in normal markets, trading securities neither creates nor destroys value.


Finance

Seperation Principle

NPV of investment can be analysed apart from the firms decision on how to finance the investment.

Finance

Value Additivity

Pricce(C)= Price (A + B) = Price(A) + Price(B)

Finance

How to maximize value of entire firm?

Make decisions that maximize NPV.


NPV of decision represents contribution to the overall value of the entire firm.

Finance

Mutually Exclusive Projects

only one project among several options can be choosen.

Finance

Shortcomings of Incremental IRR

-May not exist

-Multiple Inc. IRR could exist

-IRR exceeds cost of capital for all projects does not imply that either has positive NPV

-Different cost of capital for projects

unclear to which it should be compared to

Finance

Shortcomings of Profitability Index

-may not give an accurate answer.


-useless with multiple resource constraints

Finance

Profitable Growth

cut div and increase inv => raise the stock price if positive NPV

Finance

Limitations of Dividend-Discount Model

-Uncertainty with forecasting firms:

Growth rate & Furture Dividends


-Small changes in assumed dividend growth rate lead to large changes in estimated stock price


Finance

what to do when security is overpriced?

Short security

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