Bedrijfseconomie Accounting & Control Research (BA
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Samenvatting Bedrijfseconomie Accounting & Control Research (BA
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Bedrijfseconomie Accounting & Control Research (BA
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Vrije Universiteit Amsterdam (VU)
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cost of debt cost of equity capm sml stock market derivates expected return
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Vrije Universiteit Amsterdam (VU)
Accountancy&Control
Bedrijfseconomie Accounting & Control Research (BA
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BUSINESS ECONOMICS FOR ACCOUNTING
(Bedrijfseconomie voor Accounting en Control Research - BACR)
,Inhoud
Financial Leverage..................................................................................................................................5
Degree of Financial leverage (DFL).........................................................................................................5
Degree of Operating Leverage (DOL)?....................................................................................................5
Other Comprehensive Income................................................................................................................7
Cash(flow) transactions: Operations, investing and financing................................................................8
Retained earnings.................................................................................................................................10
Liquidity ratios..................................................................................................................................12
Debt ratios........................................................................................................................................13
The profitability ratios......................................................................................................................13
The market ratios.............................................................................................................................13
Time value of money............................................................................................................................16
Future value lump-sum.....................................................................................................................17
Present value lump sum...................................................................................................................17
Future value Annuity........................................................................................................................18
Present value Annuity.......................................................................................................................18
Present value uneven cashflow stream............................................................................................19
Perpetuities - PVP (eeuwigdurende betaling)...................................................................................19
Discounting and Risk.........................................................................................................................19
Annual/Semiannual compounding...................................................................................................20
Cost of money......................................................................................................................................21
Components of interest rate................................................................................................................22
Bonds....................................................................................................................................................23
Bond Rating......................................................................................................................................24
Relationships in bonds value............................................................................................................25
When Market Interest Rates Increase..........................................................................................25
When Market Interest Rates Decrease.........................................................................................25
Relationship Between Market Interest Rates and a Bond's Market Value...................................25
How Are Coupon Rates Affected by Market Interest Rates?........................................................26
Stocks...................................................................................................................................................26
Difference between bonds and stocks..............................................................................................26
Stock valuation.................................................................................................................................27
Dividend Discount Model (DDM)..................................................................................................27
Constant.......................................................................................................................................27
Variable or Nonconstant Growth Dividend Discount Model........................................................29
, Calculate rate of return constant growth.........................................................................................31
Derivatives............................................................................................................................................32
Swap.................................................................................................................................................32
Interest Rate Swaps......................................................................................................................32
Risks and rate of return........................................................................................................................33
Standard deviation...........................................................................................................................34
Example calculation standard deviation:......................................................................................34
Coefficient of variation (CV)..............................................................................................................34
Portfolio (diversification)..................................................................................................................35
Expected return on a portfolio.....................................................................................................35
Correlation coefficient..................................................................................................................36
(Non-) diversifiable risk.................................................................................................................36
Beta......................................................................................................................................................37
The Capital Asset Pricing Model (CAPM)..............................................................................................37
Security Market Line (SML)...............................................................................................................37
Disadvantages of CAPM....................................................................................................................38
Capital budgeting.................................................................................................................................39
Replacement / expensation decision................................................................................................39
Classification projects.......................................................................................................................39
Methods...........................................................................................................................................39
Present Value................................................................................................................................39
Internal rate of return (IRR)..........................................................................................................40
Payback Analysis...........................................................................................................................41
Discounted payback......................................................................................................................41
Relevant Cashflows...........................................................................................................................42
Components incremental cashflows.............................................................................................43
Sensitivity Analyse............................................................................................................................47
WACC................................................................................................................................................48
The cost of capital................................................................................................................................48
Cost of Debt......................................................................................................................................48
Cost of Equity...................................................................................................................................49
Cost of Equity : preferred stock....................................................................................................50
Cost of Equity : Retained Earnings................................................................................................50
Cost of Equity : New equity..........................................................................................................51
WACC................................................................................................................................................52
Example........................................................................................................................................53
, Marginal cost of capital....................................................................................................................53
Example 1.....................................................................................................................................54
Example 2.....................................................................................................................................55
Uses..............................................................................................................................................56
MCC Schedule...............................................................................................................................56
Capital structure...................................................................................................................................58
Influences.........................................................................................................................................58
Minimizing WACC.............................................................................................................................59
EPS/EBIT analyse..............................................................................................................................60
Theory 1: Modigliani-Miller Theorem...............................................................................................60
Theory 2: Signaling Theory...............................................................................................................61
Pecking Order Theory.......................................................................................................................62
Static trade-off theory......................................................................................................................62
Dividends policy....................................................................................................................................63
Appendix: Formulas..............................................................................................................................64
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