Advanced Corporate Finance
corporate finance decisions are only made - answer-inside the firm investor's financial decisions are made - answer-outside markets value - answer-what investors (markets) are currently willing to pay for an asset (price) Firms create value by - answer-beating market expectations. Firms can obtain more by using investors capital than what investors can obtain by themselves in the market Security Market Line (SML) - answer-a positively sloped straight line displaying the relationship between expected return and beta NPV - answer-increase of wealth to investors that occur as a consequence of taking an investment project risk-adjusted discount rate method - answer-a formal method of adjusting for risk in which the decision maker increases the rate used for discounting the future cash in flows to compensate for increased risk incremental cash flows - answer-the difference between a firm's future cash flows with a project and those without the project why make leverage adjustments on the observed beta of the comp? - answer-leverage affects the risk of the equity of a project. Equity risk increases with leverage. Unless an adjustment is made, using the risk of the equity of a comp will overstate the risk of the project Cost of Equity - answer-the return that equity investors require on their investment in the firm...
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