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Interest Rate Sensitivity

Introduction   The conventional view of the monetary policy transmission and the basic tenet of the investment theory is that a increase in rates has a negative effect on the capital expenses by the business. The  fundamental building block of any firm’s user cost of capital  is market interest which further joined with the outcome […]

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Capital Budgeting

Capital Budgeting:   Capital Budgeting is defined as the process of Project-Analysis using a set of tools and criteria to determine which projects are acceptable and which are not from a financial standpoint.   Types of Projects: We can distinguish between two generic types of projects: Mutually-Exclusive Projects: are projects considered substitutes to one another, […]

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Cash Flow Estimation and Risk Analysis

Cash Flow Estimation and Risk Analysis In estimating Project Cash Flows, we have to keep in mind two considerations regarding what we mean by project cash flows: 1) Cash Flows that are relevant for a project are incremental (i.e., marginal cash flows). 2) Cash Flows that are relevant for a project are After-Tax Incremental Cash […]

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Estimating the Cost of Capital

Estimating the Cost of Capital The Cost of Capital for a company is a “weighted-average” of the costs of the different components of capital.  Generally, only “investor-supplied” capital is considered as source of capital.  Therefore, the following sources of Capital are available to fund future investments and growth opportunities of a company: Long-Term and Medium-Term […]

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Time Value Of Money

 Time Value Of Money: we will discuss the following concepts: Computing the Future Value of a Single Payment. Computing the Present Value of a Single Payment. Computing the Future Value of an Annuity Ordinary Computing the Future Value of an Annuity Due Computing the Present Value of an Annuity Ordinary Computing the Present Value of […]

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Analysis of Financial Statements

Analysis of Financial Statements: we will discuss five key groups of ratios that describe company performance: Liquidity Ratios Asset Management Ratios Debt Management Ratios Profitability Ratios Market Value Ratios   Liquidity Ratios: these analyze the short-term liquidity of a company (its ability to stay alive in the short-run without going bankrupt).  There are two types […]