C O N T E N T


INTRODUCTION ………………………………………………………………………. 2


PART ONE – REQUIRED RETURN ON IN VESTMENT


INTRODUCTION ……………………………………………………………………….. 2


a. SYSTEMATIC AND UNSYSTEMATIC RISK……………………………………. 3


b. CAPITAL ASSET PRICING MODEL – BETA ………….………………………… 5


c. INFORMATION THAT BETA GIVE TO A FINANCIAL MANAGER ……………….. 7


SUMMARY………………………………………………………………………………. 9


PART TWO – CAPITAL INVESTMENT DECISION


INTRODUCTION ………………………………………………………………………… 10


a. TIME VALUE OF MONEY…………………………………………………………. 10


b. CHOOSING AN APPROPRIATE DISCOUNT RATE……………………………… 11


c. NET PRESENT VALUE (NPV) AND INTERNAL RATE OF RETURN (IRR)……. 13


d. COMPARE AND CONTRAST OF NPV AND IRR ………………………………… 14


SUMMARY ……………………………………………………………………………… 16


CONCLUSION …………………………………………………………………………… 17


REFERENCES ……………………………………………………………………………. 17


I N T R O D U C T I O N


A major objective of companies is to help create and improve shareholder value through


better risk-based decision making and capital allocation. Integration of the key functions


of managing risk, capital and value is essential in order to deliver shareholder value, as these


three elements are inextricably linked. The level of risk exposure determines capital needs;


however, capital utilization has a cost and reduces value creation; also the nature of the risk


determines the “price of risk”, which is a key driver of value creation. (Peter Needleman,


2004) Creating Value for investors means delivering consistently high returns on their


capital. This generally requires both strong revenue growth and attractive profit margins.


This paper looks at concepts of required return on investment and capital investment


decision. Part one of this paper discuss risk and the capital assets pricing model (CAPM)


and part two examines the time value of money and understands the investment appraisal


technique such as net present value (NPV) and internal rate of return (IRR).


PART ONE – REQUIRED RETURN ON INVESTMENT


INTRODUCTION


Capital is scarce and investors will seek out investment opportunities that will allow them to


optimize the return versus risk. Risk is often defined as the unexpected variability or


volatility of returns, and thus includes both potential worse than expected as well as better


than expected returns. The capital asset pricing model (CAPM) is in finance to determine


a theoretically appropriate required rate of return of an asset or portfolio. The CAPM


formula takes into account the asset’s sensitivity to systematic risk, as well as the expected


return of the market and the expected return of a theoretical risk-free asset. This part of


paper distinguishes systematic and unsystematic risk; examine beta of the CAPM and its


limitation, as well as discussing the information that beta give to a financial manager.


SYSTEMATIC AND UNSYSTEMATIC RISK (SECTION A)


The investors require two types of return on their investments. First is the expected return


which is to compensate the price of time. It reflected in the going market interest rate on


low- or no-risk securities. Second is the unexpected or risky return which is to compensate


the price of risk or risk premium of the particular activity which they have invested. Risk


in finance is the chance that an investment’s actual return will be different from expected.


The risk of a portfolio comprises systematic risk and unsystematic risk.


Systematic risk or relevant risk is risk that influences a large number of assets, each to a


greater or lesser degree. It is inherent in the market or system, this is also called market


risk. Systematic risk related to macroeconomic factors or market-wide events likes


recession, high inflation, change of interest rates and wars. This type of events affects


entire market and cannot be avoided through diversification. It is also called


undiversifiable risk. Systematic risk can be mitigated only by being hedged. It measures


by beta, the stock’s correlation to an overall market. For example, the Standard & Poor’s


500 Index is the proxy for the market.


Unsystematic risk is risk that influences a single company or a small group of companies.


It is also called unique or specific risk. It is related to events that affect a very specific


group of securities or an individual security. Examples include strikes, plant accidents,


takeovers, and CEO’s resignation of a single firm. Unsystematic risk could be essentially


eliminated by diversification, so a portfolio with many assets has almost no unsystematic


risk. For instance, by holding a large portfolio of stocks, the random unsystematic ups and


downs of one stock will be tempered by offsetting unsystematic downs and ups of other


stocks because of their positive or negative companies-specific events. Unsystematic risk


is also called diversifiable risk.



C


Total Risk (U)


Diversifiable


Unsystematic


or specific risk ε


D


Systematic or


Market Risk m Undiversifiable


Risk of


Portfolio


(standard


deviation


of return)


A


0


Number of securities in portfolio


B


Total Risk (U) comprises


systematic risk (m) and


unsystematic risk (ε) and are


measured on standard deviation:


R = Rf + U


Becomes


R = Rf + m +ε


Where


R is required rate of return


Rf is the risk free return (return on


time)


As number of securities increases,


the total risk declines along CD


until it reaches an effective


minimum AB, it is called


diversification. The remaining


risk is market risk which cannot


be diversifiable.



Figure 1: Systematic and Unsystematic Risk



Source: Master of Business Admin Text Book, 2608/9 Finance and Growth Strategies (6.13)



The behavior of systematic and unsystematic risk is shown in Figure 1. The Systematic


risk is often regarded as the only relevant risk. The systematic risk principle states that


the reward for bearing risk depends only on the systematic risk of an investment. Since


investors can avoid bearing unsystematic risk by simply holding a diversified portfolio.


Market Risk cannot be removed (except by diversifying into the security markets of other


countries). So, no matter how much total risk an asset has, only the systematic portion is


relevant in determining the expected return (and the risk premium) on that asset.


CAPITAL ASSET PRICING MODEL – BETA (SECTION B)


The capital assets pricing model


1 (CAPM) is a model that describes the relationship

between risk and expected return and that is used in the pricing of risky securities. The


CAPM says that the expected return of a security or a portfolio equals the rate on risk-free


security plus a risk premium.


Ke = R


f j (ERm - Rf)

* Ke is the required rate of return


* R


f is the risk-free return

* β


j is the security beta

* ER


m is the expected return on the overall market

* β


j (ERm - Rf) is the risk premium

The Beta coefficient is a key parameter in the CAPM and a risk metric employed primarily


in the equity markets. Beta is a measure of systematic risk of a security that cannot be


avoided through diversification. It is the covariance of a security or portfolio in relation to


the rest of the security market. The market has a beta of 1.0, any stock or portfolio with


betas larger than 1.0 have more systematic risk than average, and vice versa. The formula


for beta is:-


cov (Zp, Zm)


σ


2m

Where cov (Zp, Zm) is the covariance between the portfolio (or asset) return and the


market return, andσ


2m is the variance of the market’s return (volatility squared).

The Beta is also used to calculate cost of equity. The cost of capital represents the discount


rate used to arrive at the present value of company’s future cash flows. The higher a


company’s beta, the lower its present value, therefore Beta can impact a company’s share


valuation.


In determining Betas, it needs to plot for the return of the asset and the index for a period


of time and fit a straight line to the plot. The slop of the fitted line from the linear


least-squares calculation is Beta. Beta value of all UK shares could be obtained from the


Risk Management Service provided by The London Business School. Meanwhile, many


summary financial websites list beta as one of the company’s key statistics, for example


MSN Money’s website.



Return on


Stock j


x x


x Beta


x x x


x x


Return on the


x market portfolio (Rm)


x


The fitted regression line is:


Rj = σ+ βRm


Whereσis the intercept with the vertical axis,


βis the slope of the line of best fit,


Rj is the Rate of return on Stock j, and


Rm is the Rate of return on the market portfolio.


In determining Betas:-


(1) it needs a list for the asset and returns for the index, these returns can be daily, weekly or any period.


(2) make a graph with the index’s fluctuations on the X-axis and the stock’s fluctuations on the Y-axis.


Repeat this procedure for the entire range of dates.


(3) Finally, fit a straight line to the plot in order to check that there are no serious violations of the linear


regression model assumption. The slop of the fitted line from the linear least-squares calculation is Beta.



Figure 2: In determining Betas by regression analysis



Source: Master of Business Admin Text Book, 2608/9 Finance and Growth Strategies (6.13)



There are limitations of beta. First, Beta is using historical data, it does not incorporate


new information. For example, American Electric Power (AEP) has been considered as a


defensive stock with a low beta. However when it entered the merchant energy business and


assumed high debts levels, AEP’s historic beta no longer captured the substantial risks the


company took on. Second, Beta is not reliable for new stocks, as they have insufficient


price history to establish a reliable beta. Third, the past price movements are very poor


predicators of the future. Beta are merely rear-view mirrors, reflecting very little of what


lies ahead. Fourth, it is unreliable for investors with long-term horizons as the beta


measure on a single stock tends to flip around over time, which makes it unreliable. Fifth,


Beta indicates that it is the only reason that the return differ, it ignores the noises of the


market. Finally, Beta, as a proxy for risk, does not help the investors to distinguish


between upside and downside price movements of the stock.


INFORMATION THAT BETA GIVE TO A FINANCIAL MANAGER (SECTION C)


Financial Managers are required to utilize cash to achieve maximum benefits for the owners


of the company. They need to decide what assets to invest, how to pay for it and how


much dividend they should pay to shareholders. It is essential that they know the required


rate of return or cost of equity for valuing the company as it stands and for assessing the


value of new operations or investments which should enhance the value of the corporation.


According to CAPM, the relationship between Beta and required return is plotted on the


Security Market Line (SML) which shows expected return as a function of Beta.



Rate of


Return


(%) SML


20


15 M


ERm = 12.5


10


5———– Risk Free Rate


of Return =5%


0 1 2 3 Beta


Let’s assume the risk free rate is 5%, the overall


market will produce a rate of return of 12.5% next


year. Lucky Company has a beta of 1.7.


The rate of return for Lucky Company will be:


Ke = R


f j (ERm - Rf)

= 5% + 1.7 (12.5% – 5%)


= 17.75%


On the horizontal axis are the betas of all


companies in the market and the vertical axis are


the required rates of return, as a percentage.



Figure 3: The calculation of required rate of return by Security Market Line (SML).


Beta is a measure of a stock’s volatility in relation to the market. From the SML on Figure


3, the return on the market portfolio “M” has a Beta of 1.0. Lucky Company with a Beta


of 1.7, indicates that, on average, security return are 1.7 times as volatile as market return,


both up and down. This would considered an aggressive security because when the overall


market return rises or falls 10 percent, Lucky Company, on average, would rise or fall 17


percent. Stocks having a beta of less than 1.0 would be considered more conservative


investments than the overall markets. High-beta stocks are supposed to be riskier but


provide a potential for higher returns, low-betas stocks pose less risk but also lower returns.


Lucky Company has Beta of 1.7, is to be riskier but has a return of 17.75% which is higher


than the market return of 12.5%.


Beta is useful for comparing the relative systematic risk of different stocks and, in practice,


is used by Financial Manager to judge a stock’s riskiness. Because the variance of the


market is a constant across all securities for a particular period, ranking stocks by beta is the


same as ranking them by their absolute systematic risk. Stocks with high betas are said to


be high-risk securities. From the comparison of beta for some US stocks, American Online


with higher beta is riskier than Exxon because the systematic risk of online industry is


higher than oil production industry. Financial Manager could construct a portfolio with


zero market (or systematic) risk by choosing an appropriate combination of securities.


Company Beta


β

Exxon 0.65


AT&T 0.90


IBM 0.95


Wal-Mart 1.l0


General Motors 1.15


Hardley Davidson 1.65


American Online 2.40


Figure 4: Beta Coefficients for some US companies (


Source: Value Line Investment Survey)

Beta is also used to calculate cost of equity and identified mispriced assets/shares. Once


the expected return is calculated using CAPM, the future cash flows of the assets can be


discounted to their present value using this rate to establish the correct pricing for the assets.


A higher beta will be discounted at a higher rate and lower betas will be discounted at a


lower rate. In theory, an asset is correctly priced when its observed price is same as its


value calculated using the CAPM derived discounted rate. If the observed price is higher


than the valuation, then the asset is overvalued (undervalued if vice verse).


SUMMARY


The risk of a portfolio comprises systematic and unsystematic risk. Systematic risk refers


to the risk common to all securities – i.e. market risk. Unsystematic risk is the risk


associated with the individual assets. Unsystematic risk can be diversified away whereas


systematic risk cannot. Thus, systematic risk is often regarded as the only relevant risk.


Beta is a key component for the capital asset pricing model (CAPM), which is used to


measure of a stock’s volatility in relation to the market and to calculate cost of equity. The


stock market is assigned a beta of 1.0. Any stock or portfolio with a beta higher/lower than


1 is more/less volatile than the market. Beta has plenty of shortcomings as it is based on


historically data. Beta give information to a Financial Manager such as measuring a


security’s volatility, or fluctuations in price, relative to a benchmark, the market portfolio of


all stocks, the cost of capital and identifying mispriced shares.


PART TWO – CAPITAL INVESTMENT DECISIONS


INTRODUCTION


Globalization has brought about changes in the way that competing for resources like capital,


land and intellectual capital (labour). With these resources becoming more mobile,


stakeholders are exerting pressure on management to create value. A successful financial


decision is one that it is worth more than they cost to implement and thus create value. In


order to compare the value various projects might create, part two of the paper will discuss


the time value of money and the importance of “discount” future cash flows; examines


factors for choosing an appropriate discount rate; understand the terms “net present value”


(NPV) and “internal rate of return” (IRR) and their comparison and contrast.


TIME VALUE OF MONEY (SECTION A)


The basic idea of time value of money is that a dollar today is worth more than a dollar


tomorrow. Money has different values depending on when it is received. For example,


,000 received today is worth more than ,000 receivable in one year’s time, because it


could be re-invested and generated some sort of interest during the year, i.e. converted into a


higher sum. It is also related to the concept of opportunities cost – the cost of any decision


includes the cost of the best forgone opportunity. If taking the money over time, it would


lose the interest on investment or any other use for the money such as spending it on


something that would be enjoy more. Furthermore, people know how much the money


worth if it is received today, whereas people have only a guess of how much it will be worth,


due to inflation. Finally, there is uncertainty or risk associated with the cash flow in the


future reduces the value of the cash flow today. For example, the ,000 may not even be


there a year later so people might as well take it when it can be got.


There are 2 key terms for time value of money:- (1) Present Value is exactly that the amount


of money that it is at the present time and (2) Future Value is the amount of money that it


will have at a given point in the future. The process by which future cash flows are


adjusted to reflect the above factors is called discounting, and the magnitude of these factors


is reflected in the discount rate. The Present Value formula is listed below:



FV


PV = —————–


(1+r)


n

PV = the value of a dollar at time = 0


FV = the value of a dollar at time = n in the future


r = the interest rate that would be compounded for each period of time


n = the period of time that want to equate



It is important to “discount” future cash flows because cash flows at different points in


time cannot be compared and aggregated. All cash flows have to be brought to the same


point in time before comparisons and aggregations can be made. Furthermore, if present


values are estimated correctly, there is indifferent between the future cash flow and the


present value of that cash flow. In fact, the discount rate can be viewed as a composite of


the expected real return, the expected inflation and the uncertainty associated with the cash


flow.


CHOOSING AN APPROPRIATE DISCOUNT RATE (SECTION B)


The discounted value of cash flow is determined by reducing its value by the appropriate


discount rate for each unit of time between the time when the cashflow is to be valued to the


time of the cash flow. Most often the discount rate is expressed as an annual rate. When


choosing an appropriate discount rate, the length of time until the cash is due, the amount of


risk that the cash will not be tendered when due and the rate of return available from


comparably risk investments need to be taken into account. The discount rate is the


opportunity cost plus risk factor (or the time value of money). It is made up of an interest


rate and an equity yield rate. Discount rates are the safe rate earned from a completely


riskless investment (this rate may reflect anticipated loss of purchasing power due to


inflation) and compensation for risk, lack of liquidity, and investment management expenses.


The discount rate has several components: – the inflation rate; the risk-free component;


general risk premium and specific risk premium.



Discount Rate Components Description Measured by


INFLATION RATE The annual rate of price change for a basket


of consumer goods.


Consumer Price Index


THE RISK-FREE


COMPONENT


A return to compensate the investor for a


loss of liquidity


Risk-free rate minus


inflation rate


GENERAL RISK


PREMIUM


A return to compensate the investor for


assuming diversified company-wide risk


The weighted average cost


of capital (WACC) minus


the risk-free rate


SPECIFIC RISK PREMIUM A return to compensate the investor for


assuming the unique risk


The discount rate minus the


WACC.



Figure 5: Discount Rate Components


When estimating the discount rate, it is good to apply the concepts of the weighted average


cost of capital (WACC). The WACC is a function of the mix between debt and equity and


the cost of that debt and equity. It is essentially a blend of the cost of equity and the


after-tax cost of debt. For calculating cost of equity, Capital Asset Pricing Model (CAPM)


is an accepted method: where cost of equity (Re) = Rf + Beta (Rm-Rf). The rate applied to


determine the cost of debt should be the current market rate the company is paying on its


debt. As Companies benefit from the tax deductions available on interest paid, the net cost


of the debt is actually the interest paid less the tax savings resulting from the tax-deductible


interest payment. From the following example, the discount rate for ABC company would


be 8.26% (see Figure 6).



Cost of Debt Example of ABC Company: Cost of Equity


Capital structure: 60% debt and


40% of equity


Tax rate (T) = 30%


Risk Free Rate (Rf) = 5%


Beta (β) = 1.3


Risk Premium (RP) = 8%


Debt Ratio (RF x (1 – T)


= 0.6 (0.05 x (1-0.3)


= 0.6 (0.035)


= 0.021


= 2.1%


Equity Ratio (Rf +β(RP)


= 0.4 (0.05 + 1.3 (0.08))


= 0.4 (0.154)


= 0.0616


=6.16%


WACC = 2.1% + 6.16% = 8.26%



Figure 6: Calculation of WACC for ABC Company


NET PRESENT VALUE (NPV) AND INTERNAL RATE OF RETURN (IRR)


(SECTION C)


The Net Present Value (NPV) is the discounted or present value of a project or investment


after meeting the finance charge, including return of initial capital. The cash flows are


discounted or adjusted by incorporating the uncertainty and time value of money. The


discount rate for NPV should reflect inflation and opportunity costs. However, it is no


need to deduct interest payments and depreciation from the cash flows. The NPV formula


is:-



n



NVP =


Σ

t=1



CF


t

(1+r)


t

- I


0

Where CF


t denotes each cash flow in each year t;

r is the required rate of return; and


Io is the initial investment expenditure.



If the NPV results in a positive amount, the project should be undertaken. If it is negative,


it should be rejected. When calculating NPV, the discount table (Present Value Interest


Factor –“PVIF”) could be used as a short cut. It shows the discount factors for any


combination of discount rate and number of year. There are three special cases in using the


NPV:- (1) Annuities; (2) Perpetuities and (3) Growing Perpetuity.



Subject Description Its Present Value is


Annuities It is an investment with a constant


annual cash flow.


Using the annuity tales (Present Value Interest


Factors for Annuities)


Perpetuity It is an investment with a constant


cash flow and which goes on


forever.


CF x 1/r where


CF = annual cash flow


r = discount rate


Growing Perpetuity This is where the perpetuity grows


at a constant rate.


NCF x (1/(r-g)) where


NCF = Next cash flow


r = discount rate


g = grow rate



Figure 7: Different between Annuities, Perpetuity and Growing Perpetuity


The internal rate of return (IRR) is the most often used alternative of NPV for evaluating


investments without estimating the discount rate. IRR defined as the discount rate which


NPV is equal zero, and it is usually interpreted as the expected return generated by the


investment. IRR calculates the break-even discount rate, the rate at which the value of


cash outflows equals to the value of cash inflows. In general, if the IRR is greater than the


project’s cost of capital or hurdle rate, the project will add value for the company.


The IRR equation:



n



NVP = 0 =


Σ

t=1



CF


t

(1+r)


t

+ I


0

Where CF


t denotes each cash flow in each year t;

r is the required rate of return; and


Io is the initial investment



IRR can be easily for comparing the rate of the cost of capital against the IRR of projects or


investment. If the IRR is higher, then the project can be approved. However, it can be


easily misinterpreted and confused with the actual project rate of return. When dealing


with negative net benefits, the IRR concept can generate multiple IRR values for the same


project, making it difficult to compare which IRR is the true value.


COMPARE AND CONTARST NPV AND IRR (SECTION D)


Net Present Value (NPV) and Internal Rate of Return (IRR) are capital budgeting methods


for financial evaluation of long-term projects and are complementary measures of


Discounted Cash Flow (DCF). The major difference is that NPV is expressed in monetary


units and the IRR is the true interest yield expected from an investment expressed as a


percentage. NPV measure project value more directly than IRR because NPV actually


calculates the project value. If there is more than one project lined up, the manager can


simply add the values together to get a total. IRR is very good for screening project, NPV


is highly sensitive to the discount rate, while IRR bypasses the problem of deciding it. As


IRR is a rate or ratio, it is more useful for comparing unlike investments (e.g. bonds and


stocks) and for making comparisons between different sized firms and different period.


It seems that most investors would argue that NPV is the most accurate measure of (1)


telling whether the project is a good investment and (2) telling which investments are better


than others. IRR may lead to incorrect decisions in comparisons of mutual exclusive


investments or if there are unconventional cash flows. For example, during the life of a


project, cash flows must be reinvested to cover depreciation. This will give a negative


cash flow for that period, thus leading to more than one IRR and an unreliable result.


Moreover, IRR cannot be calculated when the payback period is too short to complete a


single process or when process profit is negative or zero. There is no mathematical


approach to finding IRR. The only way to find an IRR is by trial and error.


It is argue that using both measures gives better results than using either alone. The IRR


graph can be plotted to understand the dynamics of the discount rates considering the cash


flows. From the example below, it shows the discount rate below the IRR which


investment results in a positive NPV and above which an investment results in a negative


NPV. The higher the discount rate the more the cash flows will be reduced, results to the


lower NPV of the project. The company should approve any project or investment where


the IRR is higher than the cost of capital as the NPV is greater than zero. Otherwise, the


company can restructure the negative NPV project to lower the project risk to a level that


will yield a positive NPV.



NPV


($’000)


1,500


1,300


1,100


900


700


500


300


100


IRR = 17.25%


-100


-300


-500


0% 5% 10% 15% 20% 25% 30% 35% 40%


Discount Rate (r)


Calculating the IRR is


done through a


trial-and-error that looks


for the discount rate that


yield an NPV equal to


zero.


The Discount Rate below


the IRR results positive


NPV and above the IRR


results negative NPV.



Figure 8: The relationship between NPV and IRR


SUMMARY


Discounting reflects one of the most fundamental concepts in finance, the time value of


money. Money now has a greater value than money in future because the price level which


would undermine future purchasing power by inflation; foregone the opportunity cost and


increase the uncertainty or risk associate with the cash flow. It is important to discount


future cash flows for comparison. The discount rate is usually chosen to be equal to the


cost of capital. Some adjustment may be made to the discount rate to take account of risks


associated with uncertain cashflows, with other developments. The NPV and IRR are


investment decision tools that include time value of money which discount the cash flow.


They are complementary ways of looking at a problem or opportunity. The IRR model is a


good first approximation as to the value of a project but it is better to combine it with more


comprehensive financial evaluation tools, such as NPV.


C O N C L U S I O N


Company needs a metric that appropriately reflects the three elements of risk, capital and


value in a single performance measure. Without an integrated approach, conflicting


objective are likely to hinder effective decision making. The capital asset pricing model,


weight average cost of capital, return on equity, payback method, profitability index, net


present value and internal rate of return are some techniques for Manager to evaluate the


required return on investment and capital investment decision. As each method has its


advantages and limitations, it is essential for manager to use different methods as


complement.


R E F R E N C E S


PART ONE:


Ben McClure (2004), Beta: Know the Risk, The Wall Street Journal


Black F, Jensen M and Scholes M, (1972) The Capital Asset Pricing Model: Some Empirical


Tests, in M Jensen ed, Studies in the Theory of Capital Markets


Campbell R Harvey (1995), Asset Pricing and Risk Management, wwwFinance


Fama, E and French, K (1992) The Cross-Section of Expected Stock Returns, Journal of


Finance, June 1992


French CW (2003), The Treynor Capital Asset Pricing Model, Journal of Investment


Management, 1(2), 60-72


Holton, Glyn A (2004), Defining Risk, Financial Analyst Journal 60(6), 19-25


Jim Mueller (2005) Beta: The Alpha and Omega to Risk Analysis? The Motley Fool


Lintner J (1965), The valuation of risk assets and the selection of risky investments in stock


portfolios and capital budgets, Review of Economics and Statistics, 47, 13-39


McCracken, ME (2005) Security Market Line;


http://teachmefinance.com/securitymarketline.html


Markowitz, Harry M (1952), Portfolio Selection, Journal of Financial, 7 (1) 77-91


Mossin, Jan (1966) Equilibrium in a Capital Asset Market, Econometrica, 34


Paul O’Malley (1998) Value Creation and Business Success, The Systems Thinker, Vol 9 No.2


Peter D Needleman (2004), The last word: Improving Financial Management, Emphasis 2004/4


Pierre Saint-Laurent (2006) Risk 101: Systematic versus unsystematic risk: Make sure your


clients understand the difference, Advisor’s Edge Report


Sharpe, William F (1964), Capital asset prices: A theory of market equilibrium under


conditions of risk, Journal of Finance 19(3), 425-442


Thomas H Eyssell, PhD (2003), What’s the Proper Beta? Financial Advisors and the


“Two-Beta Trap”, Journal of Financial Planning, FPA


Tobin, James, (1958) Liquidity preference as behavior towards risk, The Review of


Economic Studies, 25, 65-86


William N Goetzmann, An introduction to Investment Theory: Further Explorations of the


Capital Asset Pricing Model, Yale School of Management


Understanding Investment Risk, Investment Plan, http://learningforlife.fsu.edu


PART TWO


Alison Hirsch (1999), Corporate Finance Basics, Professor Satya Gabriel of the Economic


Department at Mount Holyoke College


Aswath Damodaran – Investment Valuation: Tools and Techniques for Determining the


Value of any Assets


Ben McClure (2007) DCF Analysis: Calculating the Discount Rate, The Wall Street Journal


David T Meeting, Randall W Luecke, and L Garceau, (2001) Future Cash Flow


Measurements, FASB Concepts Statement No. 7


Doug Mclntosh aka MadMac (1998) What is Money? Vronsky and Westerman


Ian Giddy (2006) Time Value of Money: Highlights, NYU Stern


James R Hitchner – Financial Valuation: Applications and Models


Marguerite McPherson (2003) Time Value – Money, Understanding the Time Value of


Money, Women’s Center for Financial Information


Prirson and Birds, Business Finance 7


th Ed. McGran Hill

Ray Martin (1997), Internal Rate of Return Revisited, The Financial Economics Network


(FEN), an affiliate of the Social Science Research Network (SSRN)


S David Young, Stephen F, O’Byme – EVA and Value-Based Management: A practical


Guide to Implementation


Susan Combs, Manual for Discounting Oil and Gas Income, Window on State Government


Tom Copeland, Tim Koller, Jack Murrin (1998): Valuation. J Wiley & Sons, 2


nd ed

Time Value of Money (


http://www.studyfinance.com) from University of Arizona

http://en.wikipedia.org/wiki/Internal_rate_of_return


http://www.valuebasedmanagement.net/methods_irr.html




Credit:ivythesis.typepad.com


0 comments:

Post a Comment

 
Top