Corporate Finance: Part I - Cost of Capital

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1. Introduction

2. The objective of the firm

3. Present value and opportunity cost of capital
3.1 Compounded versus simple interest
3.2 Present value
3.3 Future value
3.4 Principle of value additivity
3.5 Net present value
3.6 Perpetuities and annuities
3.7 Nominal and real rates of interest
3.8 Valuing bonds using present value formulas
3.9 Valuing stocks using present value formulas

4. The net present value investment rule

5. Risk, return and opportunity cost of capital
5.1 Risk and risk premia
5.2 The effect of diversification on risk
5.3 Measuring market risk
5.4 Portfolio risk and return
5.4.1 Portfolio variance
5.4.2 Portfolio’s market risk
5.5 Portfolio theory
5.6 Capital assets pricing model (CAPM)
5.7 Alternative asset pricing models
5.7.1 Arbitrage pricing theory
5.7.2 Consumption beta
5.7.3 Three-Factor Model

Index

This compendium provides a comprehensive overview of the most important topics covered in a corporate finance course at the Bachelor, Master or MBA level. The intension is to supplement renowned corporate finance textbooks such as Brealey, Myers and Allen's "Corporate Finance", Damodaran's "Corporate Finance - Theory and Practice", and Ross, Westerfield and Jordan's "Corporate Finance Fundamentals".

The compendium is designed such that it follows the structure of a typical corporate finance course. Throughout the compendium theory is supplemented with examples and illustrations.