BU517 Study Guide - Midterm Guide: Capital Asset Pricing Model, Risk-Free Interest Rate, Discount Window
Document Summary
Value of a business the present value of all future cash flow it can generate. Discount rate required rate of return for investing in that company: risky company you would want a higher discount rate for a bigger return. Two ways to buy a company: buy shares (our focus, selle(cid:396) p(cid:396)efe(cid:396)(cid:396)ed usuall(cid:455), as it"s (cid:272)lea(cid:374)e(cid:396) a(cid:374)d easie(cid:396), a(cid:374)d ta(cid:454) i(cid:373)pli(cid:272)atio(cid:374)s (cid:894)qsbc exemptions, buy assets, pros: there could be baggage to purchase as a company may have lawsuits. Cost of debt easier to estimate as it is fixed. Cost of equity more challenging as early stages its not a lot while later stages it starts paying back more: the return you want, the return on equity, or, capm. Le: re (cid:272)o(cid:373)(cid:373)o(cid:374) sha(cid:396)eholde(cid:396)s" e(cid:454)pe(cid:272)ted (cid:396)ate of (cid:396)etu(cid:396)(cid:374) (cid:894)(cid:272)ost of e(cid:395)uit(cid:455)(cid:895, rd cost of debt, e - equity balance (refers to common equity)
