Indholdsfortegnelse

Uge 35 - Centrale problemstillinger i Finansiering................................................................................................... 12

Chapter 1 - introduction to corporate finance......................................................................................................... 12

Capital budgeting..........................................................................................................................................................12
Capital structure............................................................................................................................................................13
Working capital management......................................................................................................................................13
Triple bottom line..........................................................................................................................................................13
Financial markets..........................................................................................................................................................13
Primary and secondary markets...................................................................................................................................14

Chapter 2 Corporate governance............................................................................................................................ 15

Sole Trader............................................................................................................................................................ 15

Partnership............................................................................................................................................................ 15
Primary disadvantages of sole trader business and partnerships are:....................................................................15

Corporation........................................................................................................................................................... 16
Single tier board........................................................................................................................................................16
Two-tier board..........................................................................................................................................................16
Disadvantages...........................................................................................................................................................17
Join-stock companies/public limited companies or limited liability..............................................................................17

Corporate governance............................................................................................................................................ 17
Acency relationships......................................................................................................................................................17
Type 1........................................................................................................................................................................17
Management goals...................................................................................................................................................17
Managerial compensation........................................................................................................................................18
Control of the firm....................................................................................................................................................18
Shareholder rights....................................................................................................................................................18
Cumulative voting.....................................................................................................................................................18
Straight voting...........................................................................................................................................................19
Proxy voting..............................................................................................................................................................19
Classes of shares.......................................................................................................................................................19
Other rights...............................................................................................................................................................19
Dividends..................................................................................................................................................................20
Type 2 agency relationship............................................................................................................................................20
Stakeholder...............................................................................................................................................................20

Legal enviroment................................................................................................................................................... 21

The financial system (bank-based, market-based.................................................................................................... 22

Ownership structure......................................................................................................................................................24

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FCF ROSS CHP 2-3 (Kapitel 3).................................................................................................................................. 26
The balance sheet.........................................................................................................................................................26
Assets........................................................................................................................................................................26
Liabilities and owners’ equity: the right side............................................................................................................26
Liquidity....................................................................................................................................................................26
Market value versus book value...............................................................................................................................27
The income statement...................................................................................................................................................27
The income statement..............................................................................................................................................27
GAAP and the income statement.............................................................................................................................27
Noncash items..........................................................................................................................................................27
Time and costs..........................................................................................................................................................28
Taxes.............................................................................................................................................................................28
Average tax rate........................................................................................................................................................28
Marginal tax rate......................................................................................................................................................28
CASH FLOW...................................................................................................................................................................28
Cash flow from assets...............................................................................................................................................29
Cash flow to creditors and stockholders..................................................................................................................29
Cash flow and financial statements: a closer look........................................................................................................29
Common-size statements.........................................................................................................................................30
Ratio analysis................................................................................................................................................................31
Liquidity measures....................................................................................................................................................31
Current ratio.............................................................................................................................................................31
The quick ration........................................................................................................................................................32
Other liquidity ratios.................................................................................................................................................32
Long-term solvency measures..................................................................................................................................33
Total debt ratio.........................................................................................................................................................33
Asset management, or turnover measures...................................................................................................................34
Asset turnover ratios................................................................................................................................................34
Profitability measures...............................................................................................................................................35
Return on assets.......................................................................................................................................................35
Return on Equity.......................................................................................................................................................35
Market value measures............................................................................................................................................35
Price-sales ratio.........................................................................................................................................................36
Market-to-book ratio................................................................................................................................................36
Common financial ratios...............................................................................................................................................37
ROE............................................................................................................................................................................37
Du pont identity........................................................................................................................................................37
SIC.............................................................................................................................................................................38

Kapitel 4................................................................................................................................................................ 38
Future value FV.............................................................................................................................................................38
The single period case...................................................................................................................................................39
Present value (PV).....................................................................................................................................................39
Discount....................................................................................................................................................................39
Present values for multiple periods...............................................................................................................................40
Preset versus Future value............................................................................................................................................41
Determining the discount rate......................................................................................................................................41

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Kapitel 5................................................................................................................................................................ 42
Future value with multiple cash flows...........................................................................................................................42
Present value with multiple cash flows.........................................................................................................................43
Annuity..........................................................................................................................................................................44
Future value for annuities........................................................................................................................................45
Perpetuity.................................................................................................................................................................45
Growing annuities and perpetuities..............................................................................................................................46
Annual percentage rate (APR)..................................................................................................................................46
Pure discount loans.......................................................................................................................................................47
Interest only loans.........................................................................................................................................................47
Amortized loans............................................................................................................................................................48

Kapitel 6................................................................................................................................................................ 50
Bonds.............................................................................................................................................................................50
Coupons....................................................................................................................................................................50
Bond..........................................................................................................................................................................50
Bond values and yields.............................................................................................................................................50
A general expression for the value of a bond:.........................................................................................................52
Interest rate risk............................................................................................................................................................52
Trial and error...........................................................................................................................................................53
Creditor (lender).......................................................................................................................................................53
debitor (borrower)....................................................................................................................................................53
Long term debt..............................................................................................................................................................54
The indenture................................................................................................................................................................54
Terms of a bond........................................................................................................................................................54
Security.....................................................................................................................................................................55
Seniority....................................................................................................................................................................55
Sinking fund..............................................................................................................................................................55
The call provision......................................................................................................................................................55
Protecitve covenants................................................................................................................................................55
Bond ratings..................................................................................................................................................................56
Determinants of credit ratings.................................................................................................................................56
Some different types of bond........................................................................................................................................57
Zero coupon bonds...................................................................................................................................................57
Floating-rate bonds...................................................................................................................................................57
Bond markets................................................................................................................................................................57
Clean price................................................................................................................................................................58
dirty price..................................................................................................................................................................58
Inflation and interest rates............................................................................................................................................58
Real rates..................................................................................................................................................................58
Nominal rates...........................................................................................................................................................58
The fisher effect.......................................................................................................................................................58
Bond yields....................................................................................................................................................................59
Treasury yield curve..................................................................................................................................................61
Default risk premium................................................................................................................................................61
Taxability premium...................................................................................................................................................61
Liquidity premium.....................................................................................................................................................61

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Kapitel 7 (equity valuation).................................................................................................................................... 61
Share valuation.............................................................................................................................................................61
Dividend in the future....................................................................................................................................................62
Zero growth..............................................................................................................................................................62
Constant growth.......................................................................................................................................................63
Non-constant growth................................................................................................................................................65

.............................................................................................................................................................................. 66
Two-stage growth.....................................................................................................................................................67
Component of required return.................................................................................................................................67
Ordinary equity.........................................................................................................................................................70
Preference shares.....................................................................................................................................................70
Stated value..............................................................................................................................................................70
Cumulative and Non-cumulative dividends..............................................................................................................70
Stock markets................................................................................................................................................................71
Primary market.........................................................................................................................................................71
Secondary market.....................................................................................................................................................71
A dealer.....................................................................................................................................................................71
A broker....................................................................................................................................................................71
Firm valuation...............................................................................................................................................................71
Valuation of a firm’s cash flow.................................................................................................................................72
Markets multiples valuation.....................................................................................................................................72
Net present value..........................................................................................................................................................73
Estimating net present value....................................................................................................................................73
Payback period..............................................................................................................................................................74
The discounted payback................................................................................................................................................75
The average accounting return.....................................................................................................................................75
The internal rate of return............................................................................................................................................77
Problems with the IRR..............................................................................................................................................77
Redeeming qualities of the IRR................................................................................................................................77
The modified internal rate of return (MIRR)............................................................................................................78
Profitability index..........................................................................................................................................................78
Summary...................................................................................................................................................................78

Kapitel 9................................................................................................................................................................ 80
Incremental cash flows.............................................................................................................................................80
The stand-alone principle.........................................................................................................................................80

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 Sunk cost...................................................................................................................................................................80
Opportunity cost.......................................................................................................................................................80
Erosion......................................................................................................................................................................80
Net working capital...................................................................................................................................................80
Financing costs..........................................................................................................................................................80
Pro forma financial statements.....................................................................................................................................81
Project cash flows.....................................................................................................................................................81
Depreciation.............................................................................................................................................................81
Bottom up approach.................................................................................................................................................81
Top down approach..................................................................................................................................................81
The tax shield approach............................................................................................................................................82
EAC (equivalent annual cost)....................................................................................................................................82

Kapitel 11............................................................................................................................................................... 82
Risk premium............................................................................................................................................................82

Kapitel 12............................................................................................................................................................... 84
Calculating the variance................................................................................................................................................84
This is connected to market efficiency. Whether information is reflected in the expected return. We expect that
markets are at least reasonably efficient in the semi-strong form. Systematic and unsystematic risk......................86
The principle of diversification......................................................................................................................................87
The systematic risk principle.........................................................................................................................................87
Measuring systematic risk.............................................................................................................................................88
Secutrity market line.....................................................................................................................................................88
Market portfolios......................................................................................................................................................89
The capital asset pricing model:...............................................................................................................................91

.............................................................................................................................................................................. 91

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 Summary.......................................................................................................................................................................92

6
7
.............................................................................................................................................................................. 93
Cost of capital...........................................................................................................................................................94

Kapitel 13............................................................................................................................................................... 94
Cost of equity (Egenkapital)..........................................................................................................................................95
Cost of debt (Egenkapital).............................................................................................................................................96
Kapitalstrutktur (WACC)................................................................................................................................................96
Emissionsomkostninger.................................................................................................................................................98
Fremskaffelse af egenkapital........................................................................................................................................99
Tegningsretter.............................................................................................................................................................100

.....................................................................................................................................................................................100
Egenkapital og fremmedkapital..................................................................................................................................102

Forelæsning 15 del 2............................................................................................................................................ 107

Aktietilbagekøb eksempel...........................................................................................................................................111
Aktiesplit eksempel.....................................................................................................................................................112

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likviditetsstyring................................................................................................................................................... 112
BAT-modellen..............................................................................................................................................................113
Eksempel

.....................................................................................................................................................................................113
Kreditstyring................................................................................................................................................................114
Eksempel:................................................................................................................................................................114
EOQ

.....................................................................................................................................................................................116

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 .....................................................................................................................................................................................116
Eksempel.................................................................................................................................................................116
Multiple choice............................................................................................................................................................118

Kapitel 18 (corporate finance).............................................................................................................................. 120

Valutakontrakter.........................................................................................................................................................122
Triangulær arbitrage...................................................................................................................................................123
Købekraftspariteten....................................................................................................................................................124
Relativ PPP..................................................................................................................................................................127
Den præcise formel for bevis om der er arbitrage:.....................................................................................................132
Opgave........................................................................................................................................................................134

Kapitel 20............................................................................................................................................................. 136

Finansiel risiko.............................................................................................................................................................136
Foward-kontrakter......................................................................................................................................................137

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 .....................................................................................................................................................................................138
Futures.........................................................................................................................................................................138
Swaps..........................................................................................................................................................................139
Eksempel:....................................................................................................................................................................139

11
Finansering guldnoter

Uge 35 - Centrale problemstillinger i Finansiering.

Chapter 1 - introduction to corporate finance

-

Capital budgeting
- The process of planning and managing a firm’s long-term investments is called capital
budgeting. In capital budgeting, the financial manager identifies investment opportunities
that are worth more to the firm than they cost to acquire. Loosely speaking, this means
the value of the cash flow generated by an asset exceeeds the cost of that asset.
- Evaluating the size, timing and risk of future cash flows is the essence of capital budgeting.

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Capital structure
- A firm’s capital structure (or financial structure) is the specific mixture of long-term debt
and equity the firm uses to finance its operations.
- What percentage of the firm’s’ cash flow goes to creditors and what percentage goes to
shareholders.

Working capital management

- Working capital refers to a firm’s short-term assets, such as inventory, and its short-term
liabilities, such as money owed to suppliers.
- Managing the firm’s working capital is a day-to-day activity which ensures that the firms
has sufficient resources to continue its operations and avoid costly interruptions.
- Involves a number of activities related to the firm’s receipt and disbursement of cash.

Goals and equity

- The financial act in the shareholders’ best interest by making decisions that increase the
valute of the equity.
- Shareholders are residual owners. What is left afte remployees, supplies and creditors are
paid their due.
- We could define corporate finance as the study of the relationship between business
decisions and the value of the equity in the business.
- The total value of the equity in a corporation is simply equal to the valute
of the owners equity. Therefor a more general way of stating our goal is as
follows: maximize the market value of the existing owners’ equity.

Triple bottom line

- Shareholder value mazimization has attracted critiscim because it appears to ignore other
important factors, such as employees and sustainability. ‘
- Triple bottom line brings the argument to the centre of corporate decision-making by
asking companies to maximize not just shareholder value, but to also measure its
contribution to society and the enviroment.

Financial markets
- The primary advantage of financial markets is that they facilitate the flow of money from
those that have surplus to those that need financing.
- The financial markets are not fundeed just by corporations paying cash to creditors or
shareholders. The savings of households (G) also find their way into the financial markets.
For example, whenever yoursalary goes into your bank account, whenever you pay
insurance on your car, house or computers, and eery time you pay your pension premium,
this money will end up in the financial market.

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Primary and secondary markets
- Primary markets refers to the original sale of securities by governments and corporations.
The secondary markets are those in which these securiities are bought and sold after the
original sale. Equities are, of course issued solely by corporations. Debt securitites are
issued by both governments and corporations.
- Primary markets: The corporation is the seller and the transaction raises money for the
corporation. Corporations engage in two types of primary market transaction: public
offerings and private placement. A public offering, as the name suggests, involves selling
securities to the general public, whereas a private placement is a negotiated sale involving
a specific buyer.

- A secondary market transaction involves one owner or creditor selling to another. Therfore
the secondary markets provide the means for transferring ownership of corporate
securtites. Although a corporation is directly involved only in a primary market transaction
(when it sells securities to raise cash), the secondary markets are still critical to large
corporations.

Fiscal policy
- The use of fiscal variables indcluding government spending and taxes. High taxation will
theoretically reduce consumer and corporate spending, thereby providing more money for
the government to spend on infrastructure.
Monetary policy
- The use of monetary variables including interest rates and money suplly. High interest
rates make it more expensive to borrow and better to save. More money supply will
increase price inflation.
Exhange rate policy
- The management of echange rates to improve country trade competitiveness. Relatively
low exchange rates will make exports cheaper in foreign countries and imports more
expensive. Relatively high exchange rates will do the opposite. Governments can have fixed

14
 exchange rates, where the domestic currency is fixed agains a benchmark such as the US
dollar. Floating exhange rates fluctuate in response to demand and supply of a county’s
currency. If demand increases, the exchange rate will strengthen and if demand falls, the
currency will weaken.
Foregin trade policy
- The use of trade barriers and import controls to manage the cost of imports and exports. If
a county believes that a foreign country is selling its goods too cheaply, it may introduce
barriers or quotas on the goods.

Chapter 2 Corporate governance

Sole Trader

- A business owned by one person

- Sole trader keeps all the profits, but the owner has unlimited liability for buinesss debts
this means that creditors can look beyon business assets to the proprietors’s personal
assets for payment.
- All business income is taxed as personal income.
- expansion limitation, as of insufficient capital.
- Called micro-companies or micro-enterprises (between one and nine employees).

Partnership
- There are two or more owners. The way partnership gains are divided is described in the
partnership agreement.
- Limited partnership, one or more general partners will run the business and have unlimited
liability, but there will be one or more limited partners who will not actively participate in
the business. A limited partner’s liablity for business sebts is limited to the amount that the
partner contributes to the partnership. This form of organization is common in law and
accounting firms.
- All income is taxed as personal income to the partners, and the amount of equity that can
be raised is limited to the partners’ combined wealth.
- Important to have a written agreement.
- Limited partnership, you must not become deeply involved in business decision unless you
are willing to assume the obligations of a general partner.

Primary disadvantages of sole trader business and partnerships are:

- Unlimited liability for business debts on the part of the owners
- Limited life of the business
- Difficulty of transferring ownership.

15
Central problem: the ability of such business to grow can be seriously limited by an inability to
raise cash for investment.

Corporation
- The most imporant form of buziness organization in the world.
- A corporation is a legal person separate and distinct from its owners, and it has many of
the rights, duties and privileges of an actual person.
- Corporations can borrow money and own property, can sue and be sued, and can enter
into contracts.
- A corporation can even be a general partner or a limited partner In a partnership, and a
corporation can own equity in another corporation.
- Articles of incorporation must be prepared to be started:
o Corporations name
o Its intended life
o Its business purpose
o Number of shares that can be issued.
- Must also have a Momorandum of association:
o Consists of rules describing how the corporation regulates its existence. Example,
the memorandum describes how directors are elected.

In large corporation, the shareholders and managers areususally separate groups. In Europe
there are two main ways in which directors of a company are elected.

Single tier board

- UK, ireland and sweden (also the US) ,the shareholders elect the board of directors, who
then select the managers.
Two-tier board
- Denmark, Germany and the Netherlands, there are two boards.
- The executive board manages the day-to-day operations of the comopany and reports to
the supervisory board which monitors the executive board’s performance.
- The supervisory board will normally consist of representatives of major shareholders,
creditors and employee groups. In both systems, managers are charged with running the
corporation’s affairs in the shareholders’ interest. In principle, shareholders control the
corporation, because they elect the directors either directly or through a supervisory
board.

Separation of ownership and management, the corporate form has several advantages. Ownership
(by shares of equity) can be readily transferred, and the life of the corporation is therefore not
limited. The corporation borrows money in its own name. As a result the shareholders in a
corporation have limited liability for corporate debts. The most they can lose is what they
have invested.

16
Disadvantages
If a corporation needs new equity for example, it can sell new shares and attract new investors.
Because a corporation is a legal person, it must pay taxes. Moreover, money paid out to
shareholders in the form of dividends is taxed again as income to those shareholders. This is a
double taxation, meaning that corporate profits are taxed twice: at the corporate level when they are
earned, and again at the personal level when they are paid out.
Fortunately, in many countries, including the UK, shareholders are given a partial or full tax credit,
which they can offset against the double tax that is levied on their dividends.

- Dividend policy are unique to corporations

Join-stock companies/public limited companies or limited liability

- Features of public ownership and limited liability remain.

Corporate governance
Acency relationships

Type 1
- The relationship between shareholders and management is called a type 1 agency
relationship. Such a relationsship exists whenever someone hires another to represent his
or her interest. Fx you might hire someone to sell a car you own while you are away at
university. In all such relationships there is a possibility there may be a conflict of interest
between the principal and the agent. Such a conflict is called a type 1 agency problem.
- The way in which an agent is compensated is one factor that affects the agency problems.
(for instance comission vs a fixed price)
Management goals
- There can accurre different interest between management and shareholder, as risk in
investment can divide these two groups. This is a type 1 agency cost.
- In general the therm agency cost refers to the cost of the cnflict of interest between
shareholders and management. An indirect agency cost Is a lost opportunity.
- Direct agency costs come in two froms.
o The first type is a corporate expidenture that benefits management but costs the
shareholders.
o The second type of direct agency cost is an expense that comes from the need to
monitor management actions.
- Managers would tend to maximize the amount of resources over which they have control
or, more generally, corporate power or wealth. This goal could lead to an overemphasis on
corpoprate size or growth. For instance, buying up another company (acquisition). if
overpayment does take place such a purchase does not benefit the shareholders of the
purchasing company
- Management may tend to over-emphaze organiszation survival to protect job security.
Also, management may dislike outside interference, so independence and corporate self-
sufficiency may be important goals.

17
Managerial compensation
- Management will frequently have a significant economic incentive to increase share value,
for two reasons.
o Managerial compensation, particurarly at the top is ususally tied to financial
perfomance in general, and often to share value in particular.
o Second incetive manager have relates to job prospects. Better performers within
the firm will tend to get promoted. More generally, managers who are succesful in
pursuing shareholders goals will be in greater demand in the labour market, and
thus command higher salaries.

Control of the firm

- The shareholders elect the board of directors, who in turn hire and fire managers.
Shareholder rights
- Shareholders elect directors, who in turn hire managers to carrry out their directives.
Shareholders, therfore control the corportaion throught the right to elect the directors. In
countries with singel-tier boards only shareholders have this right, and in two-tier board
countries the supervisory board undertakes this task.
- In two tier board systems the supervisory board (main shareholder, major creditors and
employee representatives) chooses the executive board of directors. In companies with
single-tier boards directors are elected each year at an annual meeting.

Cumulative voting
- Is to permit minority participation. If cumulatie voiting is permitted, the total numbe rof
vortes that each shareholder may vast is determined first. This is usually calculated as the
numbers of shares multiplied by the number of directors to be elected.
- With cumulative voting, the directors are elected all at once. In our example this means
that the top four vote-getters will be the new directors. A shareholder can distribute votes
however he or she wishes.
Straight voting
- The directors are elected one at a time. The only way to guarantee a seat is to own 50
percet plus one share. This also guarantees that you will win every seat, so it’s really all or
nothing.

18
 - Straight voting can “freeze out” minority shareholders. That is why many companies have
mandatory cumulative voting.

With staggered elections, only a fraction of the directorship are up for election at a particular time.
Staggering has two basic effects:
- Staggering makes it more difficult for a minority to elect a director when there is
cumulative voting, because there are fewer directors to be elected at one time.
- Staggering makes takerover attempts less likely to be succesful, because it makes I more
difficult to vote in a majority of new directors.

Staggering = ikke nye bestyrelsesmedlemmer på samme tid, så man ikke bare kan overtage en
virksomhed.

Proxy voting

- Is the grant of authority by a shareholder to someone else to vote his or her shares. For
convenience, much of the voting in large public corporations is actually done by proxy.
- Proxy fight. If shareholders are not satisfied with managemnet, an outside group of
shareholders can try to obtain votes via proxy. They can vote by proxy in an attempt to
replace management by electing enough directors.
Classes of shares
- Some forims have more than one class of ordinary equity. Ofen the classes are created
with unequal voting rights.
- Primary reasin for creating dual or multiple classes of equity has to do with the control of
the firm. If such shares exist, management of a firm can raise equity capital by issuing non-
voting or limited voting shares while maintaining control.
- Shares with unequal voting rights are quite common in the UK.
Other rights
- In addirtion to the right to vote for directors, shareholders usually have the following
rights:
o The right to share proportionanlly in dividens paid.
o The rights to share propotioanlly in assets remaining after liabilities have been paid
in a liquidation.
o The right to vote on shareholder matters of great importance, such as a merger.
Boting is susually done at the annual meeting or a speical meeting.

Pre-emptiv right: a company that wishes to sell equity must first offer it to the existing
shareholders before offering it to the general public. So they can protect their
proportionate ownership in the corporation (shareholders).

Dividends
- A return on the capital directly or indeirectly contrubyted to the corporation by the
shareholders. The payment of dividends is at the discretion of the board of directors.
o A corporation cannot default on an undecalred dividend

19
 o Dividends are not deductible for corporate tax purposes. In short, dividens are paid
out of the corporation’s after-tax profits.
o Dividends received by individual shareholders are taxable.
Type 2 agency relationship
- Exist between shareholders who own a significant amount of a company’s shares and other
shareholder who own only a small proportional amount.
- Exists whenever a company has a concentrated ownership structure, which is common in
many countries.
- When an investor owns a large percentage of a company’s shares they have the ability to
remove or install a board of directors through their voting power
- Conflict of interest between minority and majority shareholder
- Related party transaction: a dominant shareholder may benefit more from having one of
her firms trading at advantageous prices with another firm she owns.

Stakeholder
Someone, other than a shareholder or creditor, who potentially has a claim on the cash flows of the
firm.
Three types of shareholders:
- Internal
o Will be an employee or ex-employee of the firm
- Connected
o Will consist of shareholders, lenders, customers, suppliers and competitors.
- External
o The government, local communities, environmental pressure groups and regulatory
bodies.

Each groups have different interests that they want to maximize.

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Legal enviroment

- The inherent flexibility of common law legal enviroements ensures that shareholder and
outsidde stakeholders are better protected than In civil law countries.

21
 - Consistent with their lack of economic development, emerging markets tend to have more
corruption than developed countries.

The financial system (bank-based, market-based

- Corporations in market-baed countries have a shorter-term focus than in bank-based
countrie, because of the emphasis on share price and market performance.
- Market-based systems have been arguet to be more efficient at funding companies than
bank systems.
- A country with a high ratio of domestic deposits in banks divided by stock market size
would be regarded as a bank-basedd financial system.

22
 -

23
 -

Ownership structure

24
 - Ownership structure has a massive impact on corporate objectives.

Stewardship theory of corporate governance: regards the manager as a steward of ther firm’s assets
rather than an agent of the firm’s shareholders.

- Agency theory argues that manager are selfish agents who pursue their own objectives at
the expensive of all other stakeholders, including shareholders.
o Conctracutal obligations.
 Construct a remuneration package that incentivizes managers to do their
job well and seek maximization of firm value.
 Another strategy is to reduce the power of the manager so they will be
constrained in their behaviour. (typical governance innovation is to split the
role of chair and chief excutive into two different jobs. Since the chief
executive is responsible for the day-to-day running of the company, must
report to the chair there is less scope for non-value maximizing activities to
continue without getting queried.

25
 - Stweardship whteoy argues that managers are motivated to do the very best for a
company because they view themselves as the stewards of the firm.
- Stewardship theory would suggest that the role of chair and chief executive should be
combined so that the manager has enough power and authority to make decisions and
take a long-term strategic perspective.
- The stweardship theory concept is relevant in the middle east and in those countries where
long-term ivenstors such as families are common. Both theories argue that managers must
be helped to make the best deicisions for the firm, which will also be the best decisions for
shareholders. How this happens and how a firm is structured contributes to the decision-
making process and influences the financial choices made by managers.

FCF ROSS CHP 2-3 (Kapitel 3)

The balance sheet

- Snapshot of the firm

- Organizing and summarizing what a firm owns (its asstes), what a forim owes (its
liabilities), and the difference between the two (the firm’s equity) at a given point in time.
Assets
- Current or fixed
- A fixed asset Is one that has a relatively long life. Fixed assets can be either tangible, such
as a truck or a cimouter, or intangible such as a trademark or patent.
- Accounts receivable (money owed to the firm by its customers) are also current assets.

Liabilities and owners’ equity: the right side

- Firms liabilites are the frist thing listed on the right side of the balance sheet.
- Current liabilities, have a life of less than one year. Accounts payable are one example of a
current liability.
- Bondholders generically refer to long-term deebt and long-term creditors, respectevily.

The difference the total value of the assets (currrent and fixed) and the total value of the
liabilites (current and long-term) is the shareholder’s equity, also called common equity or
owners’ equity.
- If the firm were to sell all its assets and use the money to pay of its debts, then whatever
residual value remained would belong to the shareholders.
- Assets = liabilities + shareholder’s equity

Net working capital

- The difference between a firm’s current assets and its current liabilities.

Liquidity
- Refers to the speed and ease with which an asset can be converted to cash.
- Fixed assets are mostly illiquid. (try selling a buidling in one day!)
- There is a trade-off between the advantages of liquidity and forgone potential profits.

26
Debt versus equity
- If a firm borrows money, it ususally gives first claim to the firm’s cash flow to creditors.
- Equity holders are entitled to only the residual value, the portion left after creditors are
paid.
- The value of this residual portion is the shareholder’s equity in the firm which is just the
value of the firm’s assets less the value of the firm’s liabilities.

Shareholders’ equity = assets - liabilities

If the firm sells its assets and pays its debts, whatever cash is left belongs to the shareholders.

The use of debt in a firms’ capital structue is called financial leverage. The more debt a firm has,
the greater is its degree of financial leverage.

Market value versus book value

- Under GAAP, audited financial statements in the united states generally show assets at
historical costs.
- Whenever we soeak of the value of an asset or the value of the firm, we will normally
mean its market value.
The income statement

The income statement

- Measures performance over some period of time usually a quarter or a year. The income
statement equation is:
Revenues - expenses = income.
- Net income is called the bottom line. Is often expressed on a per-share basis and called
earnings per share (EPS)
- When looking at an income statement, the financial manager needs to keep three things in
mind: GAAP, cash versus noncash items, and time and costs.

GAAP and the income statement

-Expenses shown on the income statement are based on the matching principle.
-Match revenue with the costs associated with producing them.
o If we manufacture a product and then sell it on credit, the revenue is realized at the
time of sale.
o The actual cash outflows may have occurred at some different time.
Noncash items
- Primary reason that accounting income differs from cash flow is that an income statement
contains noncash items. (expenses charged against revenues that do not directly affect
cash flow, such as depreciation)
- The most important of these is depreciation.

27
 - The depreciation deduction is simply another application of the matching principle in
accounting. The revenues associated with an asset would generally occur over some length
of time. So, the accountant seeks to match the expense of purchasing the asset with the
benefit produced from owning it.

Time and costs

- Product costs
o Include such thing as raw materials, direct labor expense, and manufacturing
overhead. These are reported on the income statement as costs of goods sold, but
they include both fixed and variable costs.
- Period costs
o Are incurred during a particular time period and might be reported as selling,
general, and administrative expenses. Once again, some of these period costs may
be fixed and others may be variable. The company president’s salary for example is
a period cost and is probably fixed, at least in the short run.
Taxes

According to the orignators of the current tax rules, there are only four corporate rates:
- 15 percent, 25 percent, 34 percent and 35 percent. The 38 and 39 pecent brackets arise
because of “surcharges” applied on top of the 34 and 35 percent rates.
Average tax rate
Total taxes paid divided by total taxable income
- The percentage of your income that goes to pay taxes
Marginal tax rate
Amount of tax payable on the next dollar earned

Flat-rate tax: there is only one tax rate, so the rate is the same for all income levels. Such the
marginal tax rate is always the same as the average tax rate.
- USA is based on a modified flat-rate tax, which becomes a true flat-rate tax for the highest
income.

CASH FLOW

- The difference between the number of dollars that came in and the number that went out.

- We know that the value of a firm’s assets is equal to the value of its liabilities plus the value
of its equity.

- Simirlarly the cash flow from the firms assets. Must equal the sum of the cash flow to
creditors and the cash flow to stockholders (or owners):

o Cash flow from assets = cash flow to credtors + cash foow to stockholders.
- This is the cash flow identity. It says that the cash flow from the firms assets is equal to the
cash flow paid to suppliers of capital to the firm.

28
 - What it reflects is the fact that a firm generates cash through its various actitivities and that
cash is either used to pay creditors or paid out to the owners of the firm.
Cash flow from assets
- Operating cash flow
o Refers to the cash flow that results from the firm’s day-to-day activities of
producing and selling.
o To calculate OCF, we want to calculate revenues minus costs, but we don’t want to
include depreciation, because it’s not a cash outflow, and we don’t want to include
interest because it’s a financing expense. We do want to include taxes because
taxes are paid in cash.
- Capital spending
o NCS can be negative, if the firm sold off more assets than it purchased. The net here
refers to purchases of fixes assets net of any sales of fixed assets.
o Will often be called CAPEX which is an acronym for capital expenditures.
- Change in net working capital
o In addition to investing, I fixed assets, a firm will also invest in current assets. As the
firm changes its investment in current assets, its current liabilities will usually
change as well. To determine the change in net working capital, the easiest
approach is just to take the difference between the beginning and ending net
working capital.

- Again we know that cash flow from assets equals the sum of the firm’s cash flow to
creditors and its cash flow to stockholders.
- A negative cash flow means that the firm raised more money by borrowing and selling
stock that it paid out to creditors and stockholders during the year.
- Cash flow from assets is also called free cash flow.
o Refers to cash that the firm is free to distribute to creditors and stockholders
because it is not needed for working capital or fixed asset investments.

Cash flow to creditors and stockholders

- Represents the net payment to creditors and owners during the year.
o Cash flow to creditors is interest paid minus net new borrowing
o Cash flow to stockholders is dividends paid minus net new equity raised.
- Cash flow to creditors is also called cash flow to bond
- holders.
Cash flow and financial statements: a closer look

- Sources of cash
o Activities that bring cash are called sources of cash.
- Uses of cash
o Activities that involve spending are called uses of cash

An increase in an asset account means the firm, on a net basis, bought some assets - a use of cash. If
an asset account went down, then on a net basis, the firm sold some assets. Similarly if a liability
account goes down, then the firm has made a net payment - a use of cash.

29
 - An increase in assets account or a decrease in liability/equity acount is a use of cash.
Likewiese, a decrease in an asset account or an increase in a liability account is a source of
cash.

Common-size statements

A useful way of standarziing financial statemtns is to express each item on the balance sheet as a
percentage of assets and to express each item on the income statement as a percentage of sales. The
resulting statemtns are called common-size statements.

Common-size balance sheets

Common-size income statements

Tells us what happens to each dollar in sales.

30
Ratio analysis

A way of avoiding the problems inbolbed in comparing companies of different sizes is to calculate
and compare financial ratios. Such ratios are ways of comparing and investigation the relationships
bretween different pieces of financial information.

- Using rations eliminates the size problem because the size effecitvely divdies out. We’re
then left with percentages, multiples, or time periods.

Liquidity measures
- Primary concern is the firm’s ability to pay its bills over the short run without undue stress.
Consequently these rations focus on current assets and current liabilities.
- Liquidity ratios are particularly interesting to short-term creditors.
- One advantage of looking at current assets and liabilites is that their book values and
market values are likely to be similar.

Current ratio

current assets
current ration=
current liabilities

31
Because current assets and liabilities are, in principle converted to cash over the following 12
months, the current ratio is a measure of short-term liquidity.

- To a crediot - particurarly a short-term crediotr such as a supplier - the higher the current
ratio, the better. To the firm, a high current ratio indicates liquidity, but it also may indicate
an inefficient use of cash and other short-term assets.
- A current ration of less than 1 would mean that net working capital (current assets less
curent liablilites) is negative. This would be unsusual in a healthy firm, at least for most
types of businesses.
- The current ratio, is affected by various types of transactions, fx suppose the firm borrows
over the long term to raise money. The short-run effect would be an increase in cash from
the issue proceeds and an increase in long-term debt. Current liabilities would not be
affected, so the current ratio would rise.

The quick ration

- Large inventories are often a sign of short-term trouble. The firm may have overestimated
sales and overbought or overproduced as a result. In this case, the firm may have a
substantial portion its liquidity tied up in slow-moving inventory.
- The quick/ or acid-test ratio is computed just like the current ratio, except inventory is
omitted:
current assets−inventory
quick ratio=
current liabilities
Using cash to buy invetory does not affect the current ratio, but it reduces the quick ratio.

Other liquidity ratios

- A very short-term crediotr might be interested in the cash ratio:

cash
cash ratio=
current liabilities
Because of NWC, is frequently viewed as the amount of short-term liquidity a firm has, we
can consider the ration of NWC to total assets
NWC
NWC ¿ total assets=
Total assets
A relatively low value might indicate relatively low levels of liquidity.

- How long could the business keep running, if a company was facing a strick and cash inflow
began to dry up?
Current assets
Interval measure=
Average daily operating costs
The interval measure is also useful for newly founded or start-up companies that often
have little in the way of revenues. The average daily operating cost for start-up companies
is often called the burn rate, meaning the rate at which cash is burned in the race to
become profitable.

32
Long-term solvency measures

Long-term solvency ration are intended to adress the firm’s long-term ability to meet its obligation,
or, more generally, its financial leverage. These are sometimes called financial leverage ratios.

Total debt ratio

The total debt ratio takes into account all debts of all maturities to all creditors.
total assets−total equity
total debt ratio=
total assets

total debt
Debt equity ratio=
total equity

total assets
Equity multiplier=
total equity

The thin to notice here is that given any one of these three rations, you can immediatley
calculate the other two, so they all say exactly the same thing.

Ttoal capitalization versus total assets

Analysts are more concerned with a firm’s long-term debt than its short-term debt because the
short-term debt will constantly be changing. Also, a firm’s account payable may reflect trade
practice more than debt management policy. For these reasons, the long-term debt ratio is often
calculated as follows:
long−term debt
long term debt ratio=
long−term debt+total equity
Is sometimes called the firm’s total capitalization, and the financial manager will frequently focus
on this quantity rather than on total assets.

Financial analysts frequently calculate this ratio using only long-term debt

Times interest earned:

Another common measue of long-term solvency is the times interest earned ratio.
EBIT
¿ interest earned ratio=
Interest
As the name suggest this ratio measures how well a company has its interest obligations covered
and it is often called the interest coverage ratio.

Cash coverance:

A problem with the TIE ratio is that it is based on EBIT, which is not really a measure of cash
available to pay interest. The reason is that depcreciation, a noncash expense, has been deducted

33
out. Because interest is definitely a cash outflow (to creditors), one way to define the cash coverage
ratio is this:

EBIT + Depriciation
Cash coverage ratio=
Interest
The numerator, EBIT + deprciation, is often abbreviated EBITD (earnings beofre interest, taxes and
depreciation - say “ebbit-dee”). It is a measure of the firm’s ability to generate cash from
operations, and it is frequently used as a measure of cash flow available to meet financial
obligations.

A common variation on EBITD is earnings vefore interest, taxes dpecreciation and amortization.
(EBITDA - say “ebbit-dah”). Here amortization refers to a noncash deduction similar conceptually
to depriciation, execpt it applies to an intangible asset (such as a patent) rather than a tangible asset
(such as machine).

Asset management, or turnover measures

The speicif ratios we duscuss can all be interpreted as measures of turnover. What they are inteded
to describe is how efficiently or intensively a frim uses its assets to generate sales. We first look at
two important current assets: inventory and receivables.

cost of goods sold

Inventory turnover =
inventory
The higher this ratio is, the more efficiently we are managing inventory.

' 365 days

day s sales∈inventory=
inventory turnover

Our inventory measures give some indication of how fast we can sell product. We now look
at how fast we collect on those sales. The receivables turnover is defined in the same way
as inventory turnover:
sales
receivables turnover=
accounts receivable

365 days
Days ’∈receivables=
Receivables turnover

Called average collection period (ACP)

Asset turnover ratios

Big picture ratios

34
 Sales
NWC turnover=
NWC
This ratio measure how much work we get out of our working captial. Once again assuming we
aren’t missing out on sales, a high value is preffered.

Sales
¿ asset turnover= assets ¿
Net ¿

Sales
Total asset turnover=
Total assets
Profitability measures

Companies pay a great deal of attention to their profit margins:

Net income
profit margin=
Sales

Return on assets

Return on assets (ROA) is a measure of profit per dollar of assets. It can be defined several ways,
but the most common is this:
Net income
return on assets=
Total assets
Return on Equity

ROE is a measure of how the stockholders fared during the year. Because benefiting shareholders is
our goal, ROE is, In an accounting sense, the true bottom-line measure of performance. ROE is
ususally measured as follows:

Net income
Return on equity =
Total equity

Because ROA and ROE are such commonly cited number, we stress that it is impotant to remember
they are accounting rates of return. For this reason, these measures should properly be called return
on book assets and return on book equity. In fact, ROE is sometimes called return on net worth.
Whatever it’s called, it would be inapprpriate to comapre the result to, for example and interest rate
observed in the financial markets.

Market value measures

Net income
EPS=
Shares outstanding

Because the PE ratio measures how much investors are willing to pay per dollar of current earnings,
higher PEs are often taken to mean the firm has significant prospects for future growth. Of course,
if a firm had no or almost no earnings, its PE would probably be quite large; so, as always, care is
needed in interpreting this ratio.

35
Sometimes analysts divide PE ratio by expected future earnings growth rates. The result is the PEG
ratio. The idea behind the PEG ratio is that whether a PE ratio is high or low depends on expected
future growth. High PEG rations suggest that the PE is too high relative to growth and vice versa.

Price-sales ratio

PE ratios are not very meaningful for companies with negative earnings for extended periods.
A good example is a recent start-up. Such companies ususally do have some revenues, so analysts
will often look at the price-sales ratio:
price per share
price−sales ratio=
sales per share

As with PE ratios, whether a particular price-sales ratio is high or low depends on the industry
involved.

Market-to-book ratio

A second commonly quoted market value measure is the market to book ratio:
Market value per share
marke−¿−book ratio=
Book value per share
Book value per share is total equity divided by the number of share outstanding.

Because book value per share is an accounting number, it reflects historical costs. In a loose sense,
the market-to-book ratio therefore compares the market value of the firm’s investment to their cost.
A value less than 1 could mean that the firm has not been succesful overall in creating value for its
stockholders.

Another ratio, called Tobin’s Q ratio is much like the market-to-book ratio. Tobin’s Q is the market
value of the firm’s assets divided by their replacement cost:
' Market value of fir m' s assets
Tobi n s Q=
Replacement cost of fir m' s assets
'
Market value of fir m s debt∧equity
¿ '
Replacement cost of fir m s assets

Conceptually, the Q ratio is superior to the market-to-book ratio because it focuses on what the firm
is worth today relative to what it would cost to replace it today. Firms with high Q ratios tend to be
those with attractive investment opportunities or significant competitive advantages (or both). In
contrast, the market-to-book ratio focuses on historical costs, which are less relevant.

As a practical matter, however, Q ratios are difficult to calculate with accuracy because estimating
the replacement cost of a firm’s asset is not an easy task. Also, market values for a firm’s debt are
often unobservable. Book values can be used instead in such cases, but accuracy may suffer.

36
Common financial ratios

ROE
Net income
Return on equity =
Total equity
Du pont identity
Popular expression breaking ROE into three parts: operating effiency, asset use efficiency, and.
financial leverage.

Weakness in either operating or asset use efficiency (or both) will show up in a diminished return
on assets, which will translate into a lower ROE.

37
Considering the Du pont identity, it appears that the ROE could be leveraged up by incerasing the
amount of debt in the firm. However, notice that increasing debt also increases interest expense,
which reduces proft margins, which acts to reduce ROE. So ROE could go up or down, depending.

SIC
Standrad industrial classication code = a US government code used to classify a firm by its type of
business operations

Kapitel 4

Future value FV

If you invest for one period at an interest rate of r, your investment will grow to (1+r) per euro
invested.

The future value of 1 euro invested for t periods at a rate of r per period is this:
t
Future value=1 € · ( 1+ r )
The expression ( 1+r )t is sometimes called the future value interest factor for 1€ invested at r per
cent for t periods and can be abbreviated as FVIF.

What would 100€ be worth after five years?

( 1+r )t =( 1+0,1 )5=1,15=1,6105

100€ will thus grow to:

€ 100· 1,6105=€ 161,05

The total interest you earn is €61,05 over the five years span. You accumulate €50 the other 11,05 is
from compounding.

38
The effect of compounding is not great over short time periods, but it really starts to add up as the
horizon grows.

The single period case

Present value (PV)

- The current value of future cash flows discounted at the appropriate discount rate.
Discount
Calculate the present value of some future amount. modsætning af compounding.

The present value of 1€ to ve received in one period is generally given as follows:

PV =1 € · ( )
1
=
1+r 1+ r
1€

39
Present values for multiple periods

Calculating present values is quite similar to calculating future values, and the general result looks
much the same. The present value of 1€ to be received t periods into the future at a discount rate of r
is:

PV =1 € ·
[ ]1
( 1+r ) t
=
1€
( 1+r )t
1
The quantity in brackets, , goes by several different names. Because it’s used to discount a
( 1+ r )t
future cash flow, it is often called a discount factor. W
- The rate used In the calculation is often called the discount rate
- The quantity in brackets is also called the present value interest factor (or just present
value factor) for €1 at r per cent for t periods and is sometimes abbreviated as PVIF.
- Finally calculating the present value of a future cash flow to determine its worth today is
commonly called discounted cash flow (DCF) valuation.

40
As the length of time until payments grow, present values decline.

Preset versus Future value

Nutidsværdi betegner din maksimale betalingsvillighed.

What we called the present value factor us just the reciprocal of (that is, 1 divided by) the future
value factor:
future value factor=( 1+r )t
1
Present value factor=
(1+ r )t
In fact the easy way to calculate a present value factor on many calculators is to first calculate the
future value factor and then press the ‘1/x’ key to flip it over.

If we let F V t stand for the future value after t periods, then the relationship between future value
and present value can be written simply as one of the following:
PV· ( 1+r )t =F V t
FVt
PV =
( 1+ r )t
¿FVt·
[ ] 1
( 1+ r )t
¿ F V t · ( 1+r )−t
This last result we shall call the basic present value equation. We shall use it throughout the text. A
number of variations come up, but this simple equation underlies many of the most important ideas
in corporate finance.

Determining the discount rate

We frequently need to determine what discount rate is implicit in an investment. We can do this by
this looking at the basic present value equation:

FVt
PV =
( 1+ r )t

There are only four parts to this equation: the present (PV), the future ( F V t ¿ , the discount rate (r),
at the life of the investment (t). Given any three of these, we can always find the fourth.

41
To illustrate what happens with multiple periods, let’s say we are offered an investment that costs
us €100 and will double our money in eight years. To compare this with other investments, we
should like to know what discount rate is implicit in these numbers.
The discount rate is called the rate of return, or sometimes just the return, on the investment. In
this case we have a present value of €100, a future value of €200.

FVt
PV =
( 1+ r )t
200 €
100 € =
( 1+ r )8
It could also be written as:

€ 200
( 1+r )8= =2
100
We now need to solve for r.
1
Solve the equation for 1+r by taking the eighth root of both sides (i.e.( 1+r ) 8 ¿
Because this is the same thing as raising both sides to power of 1/8 or 0.125, this is actually easy to
do with the y x key on a calculator. Just enter 2, then press ' y x ' , enter 0.125, and press the '=' key.
The eighth root should be about 1.09 which implies that r is 9 per cent.
1
2 8 =1,0905077326653 ≈ 9 %

Actually, in this particular example there is a useful “back of the envelope” means of solving for r:
the rule of 72. For reasonable rates of return, the time it takes to double your money is given
approximately by 72/r%. In our example this means that 72/r%=8 years, implying that r is 9 per
cent, as we calculated. This rule is fairly accurate for discount rates in the range 5 to 20 per cent.

The rule of thumb has us doubling our money in 10 years; so, form the rule of 72, we have that 7,2
percent per year was the norm.

Kapitel 5

Future value with multiple cash flows

2
€ 100· 1,08 =€ 100 ·1,1664=116,64

42
Present value with multiple cash flows
Determine the present value of a series of future cash flows.
- We can either discount back one period at a time, or we can just calculate the resent
values individually and add them up.

43
The present value of 2000 in two years at 9 per cent is:
2000
2
=1683,36
1,09
The prsent value of 1000 in one year is:
1000
=917,43
1,09
Therefor the total present value is:
1683,36+917,43=2600,79

Annuity

The present value of an annuity of €C (or any other currency) per period for t periods when the rate
of return or interest rate is r is given by:
Annuity present value=C·
[
1− present value factor
r ]
{ [ ]}
1
1− t
1+ r
¿ C·
r

{1
¿ C· −
1
r 1+r t }
The term in parentheses on the first line is sometimes called the present value interst factor for
annuities and abbreviated PVIFA

The expression for the annuity present value may look a little complicated, but it isn’t difficult to
1
use. Notice that the term in square brackets on the second line, , is the same present value
( 1+ r )t
factor we’ve been calculating. In our example from the beginning of this section, the interest rate is
10 per cent, and there are three years involved. The usual present value factor is thus:

1
Present value factor= =1,1331=0,751315
1,13
To calculate the annuity present value factor, we just plug this in:

1−Present value factor

Annuity present value factor =
r
1−0,751315
¿
0,1
0,248658
¿ =2.4868
0,10
Just as we calculated before, the present value of our €500 annuity is then:
annuity present value=€ 500 ·2,486=€ 1243,43
EKS:

44
Future value for annuities
Future value factor −1
Annuity FV factor=
r
t
(1+ r ) −1
¿
r
(1+ r )t 1
¿ −
r r
- A lease is an example of an annuity due.
- An annuity due is an annuity for which the cash flows occur at the beginning of each period.

ANNUITY DUE

P V 1=400+ 400 ·
[ 1
−
1
]
0,1 0,1 · ( 1+0,1 ) 4
=[ 1667,9461785397 ]

P V 0=1267,94
Perpetuity
- An annuity in which the cash flows continue for ever’

C
PV for a perpetuity=
r
C = Cash amount

45
Growing annuities and perpetuities
If we use the symbol g to represent the growth rate, we can calculate the value of a growing annuity
using a modified version of our regular annuity formula:

[ ( ) ]
t
1+ g
1−
1+r
Growing annuity present value=C·
r −g
There is also a formula for the present value of a growing perpetuity :

Growing perpetuity present value=C·

[ ]
1
r−g
C
¿
r−g
To compare different investments or interest rate we shall always need to convert to effective rates.

We comoute the EARs in three steps. First we divide the quoted rate by the number of times that the
interest is compounded. We then added 1 to the result and raised it to the power of the number of
times the interest is compounded. Finally we subtract the 1. If we let m be the number the interst is
compounded during the year, these steps can be summarized simply as:

[ ( )]
m
rate
EAR= 1+ Quoted −1
m
FX suppose you are offered 12 per cent compounded monthly. In this case, the interest is
compounded 12 times a year, so m is 12. You can calculate the effective rate as:

Annual percentage rate (APR)

- Expresses the total cost of borrowing or investing as a percentage interest rate.
- All providers of credit must show the APR prominently in any document or advertising
material that pormotes a particular type of loan or investment.
- To calculate APR, we use the standard present value formula. The main difference is in the
cash flows that are included in the calculation.

If we let q stand for the quoted rate, then, as the number of times the interest is
compounded gets extremely larget, the EAR approaches:
q
EAR=e −1
e=2,71828

For example, with our 10 per cent rate, the highest possible EAR is:

46
 q
EAR=e −1
¿ 2,7182810−1
¿ 1,1051709−1
¿ 10,51709 %
In this case we say that the money is continuously or instantaneously, compounded.
Interest is being credited the instant it is earned, so the amount of interest grows
continuously.

Pure discount loans

Interest only loans

The borrower pay interest each period and repay the entire principal at some point in the future. If
there’s just one period, a pure discount loan and an interest-only loan are the same thing.

47
Amortized loans

With a pure discount or interest-only loan the principial is repaid all at once. An alternative is an
amortized loan, with which the lender may require the borrower to repay parts of the loan amount
over time. The process of providing for a loan to be paid off by making regular principal reductions
is called amortizing the loan.

A simple way of amortizing a loan is to have the borrower pay the interest each period, plus some
fixed amount. This approach is common with medium-term business loans. For example, suppose a
business takes out a 5000€, five-year loan at 9 per cent. The loan agreement calls for the borrower
to pay the interest on the loan balance each year, and to reduce the loan balance each year by 1000€.
Because the loan amount declines by 1000€ each year it is fully paid in five years.

Probably the most common way of amortizing a loan is to have the borrower make a single, fixed
payment every period. Almost all consumer loans (such as car loans) and mortgages work this way.
for example, suppose our five-year,9 per cent, 5000€ loan was amortized this way.

48
49
Kapitel 6

Bonds
When a corporation or government wishes to borrow money from the public on a long-term basis, it
usually does so by issuing or selling debt securities.

Coupons
- The stated interest payment made on a bond
- Level coupon bond
o Constant and paid every year.
- Bond’s face value
o The amount that will be repaid at the end of the loan.
- the coupon rate
o The annual coupon divided by the face value.

Bond
- Bonds time to Maturity
o The number of years until the face value is paid.
o Typically have 30 years when it is originally issued.
- Redeemable bond
o Bond with a maturity date
- Irredeemable bond
o A bond with no maturity date is a perpetuity.

Bond values and yields

When interest rates rise, the present value of the bond’s remaining cash flows delcines, and the
bond is worth less. When interest rates fall, the bond is worth more.

50
To determine the value of a bond at a particular point in time, we need to know the number of
periods remaning until maturity, the face value, the coupon, and the market interest rate for bond
with similar features. The interest rate required in the market on a bond is called the bond’s yield to
maturity (YTM).

51
Discount bond
- A bond that pays less than the going rate, so investors are willing to lend only something
less that the promised repayment. Thus it sells for less than face value.

Premium bond
- if the interest rate is less than the coupon rate it’s said to be a premium bond, where
investors are willing to pay a premium to get this extra coupon amount.

A general expression for the value of a bond:

- if a bond has a face value of F paid at maturirty
- a coupon of C paid per period
- t period to maturity
- a yield of r per period, its value is:

- bond prices and interest rates always move in opposite directions. When interest rates
rise, a bond’s value, like any other present value, will decline. Similarly, when interest rates
fall, bond values rise. Even if we are considering a bond that is riskless, in the sense that
the borrower is certain to make all the payments, there is still risk in owning a bond.

Interest rate risk

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How much interest rate risk a bond has depends on how sensitive its price is to interest rate
changes. This sensitivity depends on two things: the time to maturity and the coupon rate.

You should keep the following in mind when looking at a bond:

1. all other things being equal, the longer the time to maturity, the greater the interest rate
risk
2. all other things being equal, the lower the coupon rate, the greater the interest rate risk.

Trial and error

Finding the right coupon rate.
Current yield
- a bond’s annual coupon divided by its price.

Creditor (lender)
- the person or firm making the loan
debitor (borrower)
the corporation borrowing the money

- corporations are adept at creating exotic. Hybrid securities that have many features of
equity but are treated as debt. Obviously, the distinction between debt and equity is
important for tax purposes.
- One reason why corporations try to create a debt security that is really equity is to obtain
the tax benefits of debt and the bankruptcy benefits of equity.

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Long term debt
- The mutrity of a long-term debt instrument is the lenth of time the debt remains
outstanding with some unpaid balance. Debt securities can be short term or long term.
- Debt securities are typically called notes, debentures, or bonds. However, in common
usage, the word “bond” refers to all kinds of secured and unsecured debt. We shall,
therefore, continue to use the term generically to refer to long-term debt.
- Issues with an original maturity of 10 years or less are often called notes. Longer term
issues are called bonds.
- The two major forms of long-term debt are public issue and privately placed.
- The main difference between public-issue and privately placed debt is that the latter
placed directly with a lender and not offered to the public.
The indenture
- Is the written agreement between the corporation and its creditors, detailing the terms of
the debt issue. It is referred to as the deed of trust.
- The trust company must:
o Make sure the terms of the indenture are obeyed
o Manage the sinking fund
o Represent the bondholders in default - that is, if the company defaults on its
payment to them.

The bond indenture is a legal document:

- The basic terms of the bonds
- The total quantity of bonds issued
- A description of property used as security
- The repayment arrangements
- The call provisions
- Details of the protective covenants

Terms of a bond
- Corporate bonds usually have a face value (fx 1000, 10.000, or 100.000 €)
- The principal value is stated in the bond certificate. So, if a corporation wanted to borrow
€1 million, 1.000 bonds with a face value of €1000 would have to be sold. The par value
(that is, the initial accounting value) of a bond is almost always the same as the face value,
and the terms are used interchangeably in practice.

- Corporate bonds are usually in registered form. For instance, the indenture might read as
follows:
o the form of bond issue in which the registrar of the company records ownership of
each bond; payment is made directly to the owner of record.

- Bearer form:
o The form of bond issue in which is issued without record of the owner’s name;
payment is made to whomever holds the bond.

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Security
- Debt securities are classified according to the collateral and mortgages used to protect the
bondholder.
- Collateral is a general term that frequently means securities (for example, bonds and
equities) that are pledged as security for payment of debt. For example, collateral trust
bonds often involve a pledge of equity shares held by the corporation. However, the term
collateral is commonly used to refer to any asset pledged on a debt.
- Mortgage securities are secured by a mortgage on the real property of the borrower. The
property involved is usually real estate - for example, land or buildings. The legal document
that describes the mortgage is called a mortgage trust indenture or trust deed.

- Bonds frequently represent unsecured obligations of the company. An unsecured bond is a

bond in which no specific pledge of property is made. Term is not.

Seniority
- In general terms, seniority indicated preference in position over other lenders, and ebts are
sometimes labelled as senior or junior to indicate seniority.

Sinking fund
- Is an account managed by the bond trustee for the purpose of repaying the bonds. The
company makes annual payments to the trustee, who then uses the funds to retire a
portion of the debt. the trustee does this either by buying up some of the bonds in the
market or by calling in a fraction of the outstanding bonds.
The call provision
- A call provision allows the company to repurchase or “call” part or all of the bond issue at
stated prices over a specific period. Corporate bonds are usually callable.
- Call premium: the difference between the call price and the stated value.
Protecitve covenants
- Is that part of the indenture or loan agreement that limits certain actions a company might
otherwise wish to take during the term of the loan. Protective covennants can be classified
into two types: negative covenants and positive (or affirmative) covenants.

- A negative convenant is a thou shalt not type of conenant. It limits or prohibits actions the
company might take.

- A positive covenant specifies an action the company agrees to take, or a condition the
company must abide by.

55
Bond ratings

- The highest rating a firm’s debt can have is AAA and such debt is judget to be the best
quality and to have the lowest degree of risk. A large part of corporate borrowing takes the
form of low-grade, or “junk” bonds. If these low-grade corporate bonds are rated at all,
they are rated below investment grade by the major rating agencies.
- Junk territory = fallen angels
Determinants of credit ratings
Primary determinants are political risk, economic strength and growth prospects, government debt
and monetary and fiscal flexibility. Political risk relates to the stability of a country’s government,
transparency in government decisions, public security and corrupion. Economic strenth is fairly
self-ecplanatory, but it also includes financial sector development, the efficiency of the public
sector in a country, the income gap between rich and poor and flexibility in workforce patterns.

56
Monetary and fiscal flexibility means that the country’s economy is less subject to economic cycles,
plus central bank independence, timely, transperant and accountable government reporting and a
sustainable level of pension obligations.

- Corporate bond ratings bases:

o Can the company meet its debt payments?
o Macroeconomics (inflation)
o Global oil price - pushing the cost of manufacturing up, affects most firms
o Country currency strength

Some different types of bond

Biggest borrowers in the world - by a wide margin - are governments

- When a government wishes to borrow money for mor than one year it sells what are
knows as treasury notes and bonds to the public (in fact most governments do so every
month). Treasury notes and bonds can have original maturities ranging from 2 to 100
years.
- Government treasury, unlike essentially all other bonds, have no default risk, because
governments can always come up with the money to make the payments.
o ECB is an exception
Zero coupon bonds
- A bound that pays no coupons at all must be offered at a price that is much lower that its
stated value. Such bonds are called zero coupon bonds or just zeros.
o The issuer of a zero-coupon bond deducts interest every year, even though no
interest is acutally paid. Similarly, the owner must pay taxes on interest accrued
every year, even though no interest is actually received.
Floating-rate bonds
- With floating rate bonds, the coupon payments are adjustable.
o Depends on exactly how the coupon payment adjustments are defined.
- Put provision
- Inflation-linked bond
o Have coupons that are adjusted according to the rate of inflation.
Bond markets

- Trading volume in bonds on a typical is many, many times larger than the trading volume in
equities.
o The largest securities market in the world in terms of trading volume is the
government treasury market.
- Most trading in bonds takes place over the counter, or OTC, which means there is no
particular place where buying and selling occur. Instead, dealers around the world stand
ready to buy and sell. The various dealers are connected electronically.

Clean price
- the price of a bond net of accrued interest; this the the price that is typically quoted

57
dirty price
- the price of a bond including accrued interest, also known as the full or invoice price. This is
the price the buyer actually pays.

Inflation and interest rates

Real rates
- interest rates or rates of return that have been adjusted for inflation
Nominal rates
- interest rates or rates of return that have not been adjusted for inflation

the difference between nominal and real rates is important and bears repeating:
- the nominal rate on an investment is the percentage change in the amount of cash you
have.
- The real rate on an investment Is the percentage change in how much you can buy with
your cash - in other words, the percentage change in your buying power.

The fisher effect

- The fisher effect tells us that the relationship between nominal rates, real rates and
inflation can be written as:
1+ R= (1+ r ) · ( 1+h )
Where h is the inflation rate.

If we take another look at the fisher effect, we can rearrange things a little as follows:
1+ R= (1+ r ) · ( 1+h )
R=r +h+r·h

- The nominal rate has three components. First there is the real rate on the investment, r.
next, there is the compensation for the decrease in the value of the money originally
invested because of inflation, h. the thirds component represents compensation for the
fact that the money earned on the investment is also worth less because of the inflation.

- This thirds component is usually small, so it as often dropped. The nominal rate is then
approximately equal to the real rate plus the inflation rate:

- R ≈ r +h

It is important to note that financial rate, such as interest rates, discount rates and rates of
return, are almost always quoted in nominal terms. To reminds you of this, we shall
henceforth use the symbol R instead of r in most of our discussions about such rates.

- Either discount nominal cash flows at a nominal rate, or discount real cash flows at a real
rate.

The growing annuity formula, for the present value:

58
Bond yields

- The relationship between short- and long-term interest rates is known as the term
structure of interest rates.
o the relationship between nominal interest rates on default-free, pure discount
securities and time to maturity: that is, the pure time value of money.
o Tells us the pure time value of money for different lengths of time.
- When long-term rates are higher than short-term rates, we say that the term structure is
upward sloping; when short-term rates are higher, we say it is downward sloping.
o Usually because rates increase at first, but then begin to decline as we look at longer-
and longer-term rates.
o Most common share of the term structure, particurarly in modern times, is upward
sloping.
- What determines the share of the term structure - Three basic components:
o the real rate of interest and the rate of inflation. The real rate of interest is the
compensation that investors demand for forgoing the use of their money. You can
think of it as the pure time value of money after adjusting for the effects of
inflation.
 The real rate of interest is the basic component underlying every interest
rate, regardless of the time to maturity. When the real rate is high, all
interest rates will tend to be higher, and vice versa.
 The real rate doesn’t really determine the shape of the term structure;
instead, it mostly influences the overall level of interest rates.
 In contrast the prospect of future inflation strongly influences the sahpe of
the term structure. Future inflatiopn erodes the value of the cash that will
be returned, when lending money.
 As a result investors demand compensation for this loss in the form of
higher nominal rates. This extra compensation is called the inflation
premium.

59
  if investors velieve the rate of inflation will be higher in the future, then
long-term nominal interest rates will tend to be higher than short-term
rates. This an upward-sloping structure may reflect anticipated increases in
inflation. Similarly, a downward-sloping term structure probably reflects the
belief that inflation will be falling in the future.
o the third, and last component of the term structure has to do with interest rate risk.
 Longer-term bonds have much greater risk of loss resulting from changes in
interest rates than do shorter-term bonds. Investors recognize this risk, and
they demand extra compensation in the form of higher rates for bearing it.
This extra compensation is called the interest rate risk premium. The longer
is the term to maturity, the greater is the interest rate risk, so the interest
rate risk premium increases with maturity. However, interest rate risk
increases at a decreasing rate, so the interest rate risk premium does as
well.
- Putting the pieces together, we see that the term structure reflects the combined effect of
the real rate of interest, the inflation premium, and the interest rate risk premium shows
how these can interact to produce an upward-sloping term structure or a downward-
sloping term structure.

Treasury yield curve

- A plot of the yields on treasury notes and bodns relative to maturity.

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 - The treasury curve and the term structure of interest rates are almost the same things. The
only difference is that the term structure is based on pure discount bonds, whereas the
yield curve is based on coupon bond yields.
- Treasury yields depend on the three components that underlie the term structrue - the real
rate, expected future inflation and the interest rate risk premium.
- Treasury yields are default-free (except for Eurozone countries), taxable and highly liquid.

Default risk premium

- the portion of a nominal interest rate or bond yield that represents compensation for the
possibility of default.
- Lower-rated bonds have higher yields
- A bond’s yield is that it is calculated assuming that all the promised payments will be made.
As a result, it is really a promised yield, and it may or may not be what you will earn.
- If the issuer defaults, your actual yield will be lower - probably much lower. This fact is
particularly important when it comes to junk bonds.

Taxability premium
- Investors demand the extra yield on a taxable bond as compensation for the unfavorable
tax treatment.

Liquidity premium
- Investors prefer liquid assets to illiquid ones, so they demand a liquidity premium on top of
all the other premiums. Less liquid bonds will have higher yields than more liquid bonds.

Bond yields represent the combined efect of no fewer than six things. The first is the real rate of
interest. On top of the real rate are five premium compnesation for:
- Expected future inflation
- Interest rate risk
- Default risk
- Taxability
- Lack of liquidity.

Kapitel 7 (equity valuation)

Share valuation

Let P0 be the current share price and assign P1 to be the price in one period. If D1 is the cash
dividend paid at the end of the period, then:

D1 + P1
P0=
1+ R

Where R is the required return in the market on this investment.

- The current price of the equity is the present value of the dividends beginning in one
period and extending out forever:

61
Dividend in the future
Three cases to consider
1. The dividend has a zero growth rate
2. The dividend grows at a constant rate
3. The dividend grows at a constant rate after some length of time.
Zero growth

- The per-share value is thus given P0=D /R

Where R is the required return.

Constant growth

We know that the dividend t periods into the future Dt , is given by:

62
 t
D t =D 0 · ( 1+ g )
If we take D0 to be the dividend just paid and g to be the constant growth rate, the value of a share
of equity can be written as:

As long as the growth rate, g, is less than the discount rate, r, the present value of this series of cash
flows can be written simply as:

- This result is called the dividend growth model. It is also knows as the dividend discount
model, and it is very easy to use.

- If the constant growth rate exceeds the discount rate, then the share price is infinitely
large.
o Because if the growth rate is bigger than the discount rate, the present value of the
dividends keeps getting bigger. Virtually the same is true If the growth rate and the
discount rate are equal.

- The expression we came up with for the constant growth case will work for any growing
perpetuity, not just dividends on ordinary equity. If C is the next cash flow on growing
perpetuity, then the present value of the cash flows is given by:

63
 - Notice that this expression looks like the result for an ordinary perpetuity, except that we
have R-g on the bottom instead of just R.

Værdiansættelse af en aktie:

Non-constant growth
- The growth rate cannot exceed the required return indefintiyely, but it certainnly could do
so for some number of years. To avoid the problem of having to forecast and discount
infinite number of dividends, we shall require that the dividends start growing at a
constant rate at some time in the future.

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 - The share price is the present value of all future dividends. To calculate this present value,
we first have to compute the present value of the share price 3 years down the road, just
as we did before. We then have to add in the present value of the dividends that will be
paid between now and then. So the price in 3 years is:

65
Two-stage growth
The last case we consider is a particular case of non-constant growth: two-stage growth. Here, the
idea is that the dividend will grow at a rate of g1 for t years and the ngrow at a rate of g2 thereafter
forever. In this case, the value of the equity can be written as:

In this first stage g1 can be higher than R. the scseond part is the present value of the share price
once the second stage begins at time t.

We can calculate Pt as follows:

- In this calculation we need the dividend at time t+ 1, Dt +1 ,to get the share price at time t,
Pt . Notice that, to get it, we grew the current dividend, D0 , at rate g1 for t periods and then
grew it one period at rate g2. Also, in this second stage, g2 must be less than R.

Component of required return

66
 D1
Total return R, has two components. The first of these , is called the dividend yield. Becauase
P0
this is calculated as the expected cash dividend divided by the current price, it is conceptually
similar to the current yield on a bond.

The second part of the total return is the growth rate, g. We know that the dividend growth rate is
also the rate at whci hthe share price grows. This, this growth rate can be intepreted as the capital
gains yield - that is the rate at which the value of the investment grows.

67
68
Ordinary equity
- Equity without priority for dividends or in bankruptcy

Preference shares
- Equity with dividend priority over ordinary shares, normally with a fixed dividend rate,
sometimes without voting rights.
- Preference means only that the holders of the preference shares must receive a dividend
before holders of ordinary shares are entitled to anything.
Stated value
- The cash dividend is described as a percentage of the stated value

Cumulative and Non-cumulative dividends

- A preference share is not like interest on a bond. The board of may decide not to pay the
dividends on preference shares, and their decision may have nothing to do with the
current net income of the corporation.
- Dividends payable on preference shares are either cumulative or non-cumulative; most are
cumulative. If preferred dividends are cumulative and nont paid in a particular year, they
will be carried forward as an arrearage.

69
 - Usually, both the accumulated preferred dividends and the current preferred dividends
must be paid before the ordinary shareholders can receive anything.

Stock markets

Primary market
The market in which new securities are originally world to investors.
- Here companies sell securities to raise money.
Secondary market
The market in which previously issued securities are traded among investors.

A dealer
Maintains an inventory and stands ready to buy and sell at any time.
- the difference between the bad and ask prices is called the spread, and it is the primary
source of dealer profits.
A broker
Brings buyers and sellers together but does not maintain an inventory.
- Arranges transactions between investors, matchin investors wishing to buy securities with
investors wanting to sell securities. The distinctive charaterstic of security is that they do
not buy or sell securities for their own accounts. Facilitating trades by others is their
business.
Firm valuation
FCFF = cash flow from operations + Cash flow from investing activities + Net

- Once we have calculated FCFF, it is a simple matter to discount the cash flows using the
appropriate discount for the firm’s operations. It is important to note that the discount
rate used in the free cash flow valuation method will be different from the rate used for
the dividend growth model. This is because the FCFF discount rate reflects the risk of the
firm, whereas the discount rate used in the dividend growth model reflects the risk of the
firm’s equity. When a firm has no debt, the two discount rates will be the same.

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Valuation of a firm’s cash flow

Markets multiples valuation

- Identify its peers in the industry
- For each peer calculate the valuation multiple and take an average of the multiple across
the peers.

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Net present value

EXCEL FORMEL:

- A net present value is the difference between an investments market value and its cost.
Estimating net present value
- the process of valuing an investment by discounting its future cash flows.

( 1−1,15−8 )
PV =6000 · −8
=27.577,73
0,15+(2000 ·1,15 )
NPV =30000−27.577,73=−2422
Therefore, it is not a good investment. Based on our estimates, taking It would decrease the total
value of the equity by 2422. With 1000 share outstanding, it’s a loss of value of 2,42 per share.

72
Thus NPV estimates can be used to determine whether an investment is desirable. From our
example, notice that if the NPV is negative, the effect on share value will be unfavorable.

- An investment should be accepted if the net present value is positive and rejected if it is
negative.
- NPV is one way of assessing the value of a proposed investment.

Payback period
- The amount of time required for an investment to generate cash flows sufficient to recover
its initial cost.
- Based on the payback rule, an investment is acceptable if its calculated payback period is
less than some pre-specified number of years.

- We calculate the payback period by adding up the future cash flows. There is no
discounting involved so the time value of money is completely ignored. The payback rule
also fails to consider risk differences because payback would be calculated the same way
for both very risky and very safe projects.
- The biggest problem with the payback period rule is coming up with the right cut-off
period: we don’t really have an objective basis for choosing a particular number.
- Put another way, there is no economic rationale for looking at payback in the first place, so
we have no guide for how to pic the cut-off.
o As a result, we end up using a number that is arbitrarily chosen.
- Most companies use the payback method, as many investment decisions do not warrant
detailed analysis, because the cost of the analysis would exceed the possible loss from a
mistake.
- Kind of “break even” measure. Because time value is ignored, you can think of the payback
period as the length of time it takes to break even in an accounting sense, but not
economic sense.

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The discounted payback

- Is the length of time required for an investment’s discounted cash flow to equal its initial
cost.
- An investment is acceptable if its discounted payback is less than some pre-specified
number of years.

The average accounting return

Another approach to making acpital budgeting decisions involves the average accounting return
(AAR).
- An investment’s average net income divided by its average book value.

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If the firm has a target AAR of less than 20 per cent, then this investment Is acceptable; otherwise it
is not. The average accounting return rule is thus:

- Based on the average accounting return rule, a project is acceptable if its average
accounting return exceeds a target average accounting return.
- Flaw about AAR is
o It doesn’t look at the right things. Instead of cash flow and market value, it uses net
income and book value. These are both poor substitutes. As a result, an AAR
doesn’t tell us what the effect on share price will be of taking an investment, so it
doesn’t tell us what we really want to know.
- Good thing is that it can always be computed

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The internal rate of return
- IRR, the internal rate of return. Is closely related to NPV. With the IRR, we try to find a
single rate of return that summarizes the merits of a project. Furthermore, we want this
rate to be an internal rate in the sense that it depends only on the cash flows of a
particular investment, not on rates offered elsewhere.
- Based on the IRR rule, an investment is acceptable if the IRR exceeds the required return. It
should be rejected otherwise.
- The investment is economically a break-even proposition when the NPV is zero, because
value is neither created nor destroyed.
- To find the break-even discount rate we set NPV equal to zero and solve for R

- The IRR on an investment is the required return that results in a zero NPV when it is used
as the discount rate.

Problems with the IRR

- When the cash flow are not conventional, or when we are trying to compare two or more
investments to see which is best.

Multiple rates of returns problem:

- The possibility that more than one discount rate will make the NPV of an investment zero.
Mutually exclusive investments
- A situation in which taking one investment prevents the taking of another.
- Two projects that are not mutually exclusive are said to be independent.
- The best one is the one with the largest NPV.

Redeeming qualities of the IRR

- In analysing investment people in general, and financial analysts in particular, seem to
prefer talking about rates of return rather than cash values.
- Is a similar vein, the IRR also appears to provide a simple way of communicating
information about a proposal.
- We can’t estimate the NPV unless we know the appropriate discount rate, but we can still
calculate the IRR.

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 The
modified internal rate of return (MIRR)

Profitability index
- the present value of an investment’s future cash flows divided by its initial cost. Also called
the benefit–cost ratio.

- If a project cost 200 and the PV of its future cash flows is 220, the PI value would be
220
=1,1
200

- If a project has a positive NPV, then the present value of the future cash flows must be
bigger than the initial investment. The PI would this be bigger than 1 for a positive-NPV
investmnet and less 1 for a negative-NPV investment.

- PI measures the value created per cash unit invested.

o When capital is scarce, it may make sense to allocate it to projects with the highest
PIs.
- The PI is similar to NPV.

Summary

- Short payback and very high AAR, are consistent with a positive NPV.

- Because NPV uses all cash flow information, analysts must actually forecast these cash
flows. Forecast may be good or bad and long-term forecasts are more likely to be less
accurate than short-term forecasts.

77
 o NPV is inaccurate on long term uncertainty industry.

78
Kapitel 9

Incremental cash flows

The difference between a firm’s future cash flows with a project and those without the project.

The stand-alone principle

The assumption that evaluation of a project may be based on the project’s incremental cash flows.

When we have determined the inceremental cash flowes from undetaking a project, we can view
that project as a kind of “mini-firm” with its own future revenues and costs, its own assets and, of
course, its own cash flows. We shall then be interested primarily in comparing the cash flows form
this mini-firm with the cost of acquiring it.

Sunk cost
Is a cost we have already paid or have already incurred the liability to pay. The firm will have to
pay this cost no matter what.

Opportunity cost
The most valuable alternative that is given up if a particular investment is undertaken.

Erosion
A negative impact on the cash flows of an existing product from the introduction of a new product
is called erosion. In this case, the cash flows from the new line should be adjusted downwards to
reflect lost profits on other lines.

- Any sales lost as a result of launching a new product might be lost anyway because of
future competition. Erosion is relevant only when the sales would not otherwise be lost.
Net working capital
A project will need an initial investment in inventories and trade receivables (to cover credit sales).
Some of the financing for this will be in the form of amounts owed to suppliers (trade payables), but
the firm will have to supply the balance. This balance represents the investment in new working
capital.

- The firm’s investment in project net working capital closely resembles a loan. The firm
supplies working capital at the beginning and recovers it towards the end.
Financing costs
- We don’t include interest paid or any other financing costs such as dividnds or principal
repaid, because we are intrested in the cash flow gerneated by the assets of the project.
o Interest paid is not a component of cash flow from assets. Interest paid is a
financing expense, not a omponent of operating cash flows.

Pro forma financial statements

Financial statements projecting future years’ operationschan
o Are convenient and easily understood means of summarizing much of the relevant
information for a project.

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Project cash flows

Net cash flows come from three components:

- Operating activities
- Financing activities
- Investing activities

When considering the cash flows attributable to a project, we must consider only those cash flows
that arise directly as a result of making the investment.

Project cash flow = project operating cash flow - project capital.

Project operating cash flows.

Operating cash flow = Net income + Depriciation - Increase (+Decrase) in net working capital.

Cash flow = Cash inflow - cash outflow = operating cash flow - change in NWC

Depreciation
- Non-cash deduction

Reducing-balance method
- A depreciation method allowing for the acclerated write-off of assets under various
classifications.
Change in NWC
An increase in net working capital is a cash outflow, so we use a negative sign in this table to

Bottom up approach
Project net income = EBIT - Taxes

If we add the depreciation to both sides, we arrive at a slightly different and very common
expression for OCF:

OCF = Net income + Depreciation

This is the bottom-up approach. Here, we start with the accountant’s bottom line (net income) and
add back any non-cash deductions such as depriciation.
- This definition of operating cash clow as net income plus depreciation is correct only if
there is no interest expense subracted In the calculations of net income.
Top down approach

Perhaps the most obvious way to calculate OCF is:

OCF = Sales - Costs - Taxes

Here, we start at the top of the income statement with sales and work our way down to net cash
flow by subtacting costs, taxes and other expenses. Along the way, we simply leave out any strictly
non-cash items such as depreciation.

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The tax shield approach

The third variation on our basic definition of OCF is the tax shield approach. This approahc will be
useful for some problems we consider in the next section:

OCF = (Sales - Costs) x (1-T) + Deprecation x T

This approach views OCF as having two components. The first part is what the project’s cash flow
would be if there were no depreciation expense.

The second part of OCF in this approach is the depreciation deduction multiplied by the tax rate.
This is called the depreciation tax shield. We know that depreciation is a non-cash expense. The
only cash flow effect of deducting depreciation is to reduce our taxes, a benefit to us.

EAC (equivalent annual cost)

The present value of a project’s costs, calculated on an annual basis.

Kapitel 11
Total cash return = Dividend + Capital gain (or loss)

Total cash if equity is sold = Initial investment + Total return

D 1+t
Dividend yield=
Pt

Capital gains yield =( Pt +1−Pt )/ Pt

If Rt is the return in year t (expressed in decimals), the value you would have at the end of year T is
the product of 1 plus the return in each of the years:
( 1+ R1 ) · ( 1+ R 2 ) · … · ( 1+ Rt ) · … · ( 1+ R T )

Risk premium
The excess return required from an investment in a risky asset over that required from a risk-free
investment.

Variance = the average squared difference between the actual return and the average return

Standard deviation = the positive square root of the variance

81
Geometric average return
- The average compound return earned per year over a multi-year period.
-

Arithmetic average return

- The return earned in average year over a multi-year period

Efficient capital market

- A market in which security prices reflect available information
The efficient markets hypothesis (EMH)
- The hypothesis that actual capital markets are efficient.
Because of competition among investeors the market.will become increasingly efficient. A kind of
equilibrium comes into being, with which there is just enough mispricing around for those who are
best at identifying it to make a living at it.

82
Kapitel 12
Beta and SML, are key concepts because they supply us with at least part of the answer to the
question of how to determine the required return on an investment.
as
Calculating the variance

Calculation of variance:

83
Portfolio weights:
The percentage of a portfolio’s total value that is in a partuclar asset

84
A common way of saying that an announcement isn’t news is to say that the market has already
“discounted” the information in the announcnement. The use of the word discount here is different
from the use of the term In computing present values, but the spirit is the same. We we discount an
announcement or a news item, we say that it has less of an impact on the price, because the market
already knew much of it.

The difference between the actual result and the forecast, one percentage point in this ecample, is
sometimes called the innovation or the surprise.

This is connected to market efficiency. Whether information is reflected in the expected

return. We expect that markets are at least reasonably efficient in the semi-strong form.

Systematic and unsystematic risk

A systematic risk is one that influences a large number of assets, each to greater or lesser extent.
Because systematic risks have market-wide effects, they are sometimes called market risks.

An unsystematic risk is one that affects a single asset or a small group of assets. Because these risks
are unique to individual companies or assets, they are sometimes called unique or asset-specific
risks. We shall use these terms interchangeably.

85
The principle of diversification
- Spreading an investment across a number of assets will eliminate some, but not all, of the
risk.
o There is a minimum level of risk that cannot be eliminated simply by diversifying.
This minimum level is lavelled “non-diversifiable risk”.
-

- Unsystematic risk is eliminated by diversification, so a portfolio with many assets has

almost no unsystematic risk.
- Systematic risk cannot be eliminated by diversification., because a systematic risk affects
almost all assets to some degree.
o Thus systematic risk and non-diversifiable risk are used interchangeably.
The systematic risk principle
- States that the reward for bearing risk depends only on the systematic risk of an
investment.
- The expected return on an asset depends only on that asset’s systematic risk.
- No matter the risk an asset has, its only the systemtic portion that Is relevant in
determining the expected return (and the risk premium) on that asset.

86
Measuring systematic risk
- The specific measuew we shall use is called the beta coefficient, for which we shall use the
greek letter β
- A beta coefficient, or beta for short, tells us how much systematic risk a particular asset has
relative to an average asset. By definition, an average asset has a beta of 1.0 relative to
itself. An asset with a beta of 0,5, therefor has half as much systematic risk as an average
asset; an asset with a beta of 2.0 has tich as much.
- Because assets with larger betas have greater systematic risks, they will have greater
expected returns.

Secutrity market line

- A risk-free asset by definition has no systematic risk (or unsystematic risk), so a risk-free
asset has a beta of zero.

Asset A has a risk premium of 7,5 % per cent per unit of systematic risk.

Superiror return for its level of risk is to see which asset has the highest slope.

87
 - The reward-to-risk ratio must be the same for all the assets in the market.

This line, which we use to descrie the relationship between systematic risk and expected
return in financial markets, is usually called the security market line (SML). After NPV, the
SML is arguably the most important concept in modern finance.

Market portfolios

Suppose we consider a portfolio made up of all of the assets in the market. Such a portfoliio is
called a market portfolio, and we shall express the expected return on this market portfolio as E ( R M )

Because all the assets in the market must plot on the SML, so must a market portfolio made up of
those assets. To dertermine where it plots on the SML, we shall need to know the beta of the market
portfolio, β M . Because this portfolio is representative of all of the assets in the market, it must have
average systematic risk. In other words, it has a beta of 1. We could therefor express the slop the
SML as:

88
89
The capital asset pricing model:

CAPM works for portfolios just as it does for individual assets.

The slop of the SML is equal to the market risk premium E ( R M )−R f

90
Summary

91
92
CAPM is empirically untestable because the underlying market portfolio is unobservable. This is
known as Roll’s (1977) critique.

The market line tells us the reward or bearing risks in financial markets. At an absolute minimum,
any new investment our firm undertakes must offer an expected return that is no worse than what
the financial markets offer for the same risk. The reasson for this is simply that our shareholders can
always invest for themselves in the financial markets.

93
Cost of capital
- The required return that the firm must earn on its capital investment in a project to break
even. It can thus be interpreted as the opportunity cost associated with the firm’s capital
investment.
o Effectively using the IRR criterion.

Summary again:

SML is important because it tells us the reward offered in financial markets for bearing risk. It’s a
benchmark against which we can compare the returns expected from real asset investments to
determine whether they are desireable.

Kapitel 13
- WACC
o Weighted average cost of capital
 Det minimale en virksomhed skal tjene for at tilfredsstille alle af sine
investorer, inklusiv shareholders, bondholders og preference shareholders
o Når vi siger at et projekt har en IRR på 10%, er det tilsvarende at sige at 10% er the
cost of capital forbundet med investeringen.
o Man ser på risikofrie rente og bruger den rente til at diskontere projektets cash
flows. Således er cost of capital for et risk-free investment, den risiko-frie rente.
o Jo mere risky et projektet er jo højere er den end risk free rate og den diskonterede
rente ville overgå den risikofrie rente.
- En vigitg lektion med corporate finance er:
o Risikoen er afgørende for kost af kapital med en given investering.
 The cost of capital depends primarily on the use of the funds, not the
source.
o A firms cost of capital will reflect both its cost of debt capital and its cost of equity
capital.
o Hvis selskabet kommer I problemer, så har fremmedkapital første ret til selskabets
aktiver, derfor er fremmedkapital mere sikker.

Cost of equity (Egenkapital)

o Two approaches to determining the cost of equity
 Dividend growth model

R E=required return on equity

94
R E is the return that the shareholders requie on the equity, it can be interpreted as the firm’s cost of
equity capital

We can obtain all values, except expected growth rate for dividends, that we must estimate.
1. Historical growth rates
2. Analyst’s forecasts of future gorwth rates. (average them)
- Can only be used to companies that pay dividends. Model only applicable to cases in which
steady growth is likely to occur.
- Estimated cost of equity is very sensitvie to the estimated growth rate.
- This approach doesn not explicitely consider risk. Unlike the SML approach there is no
direct adjustment for the reiskiness of the investment.

Eksempel på DGM:
4 ·(1+3 %)
103=
E ( R )−3 %
↔

4 · ( 1+3 % )
R E= +3 %=0,07 ≈ 7 %
103
 SML
R E=R f + β E∗(RM −Rf )
- Tager højde for den systematiske risiko igennem anvendelsen af selskabets beta
- Kan bruges til mange forskellige virksomheder - også dem uden dividender
- Parametrene kan være svære at estimere i praksis
o Hvordan skal beta fastsættes - baggrund af daglige ugentlige eller månedlige afkast?
o Hvad er det forventede fremtidige afkast på markedsporteføljen - R M ?
Eksempel:
R E=4,5 %+1,3∗( 12 %−4,5 % )=0,1425 ≈ 14,25 %

Cost of debt (Egenkapital)

- Selskaber kan hente fremmedkapital ved at:

o Udstede obligationer I markedet
o Tage et banklån

- Hvis vi kender den rente som selskabat rent faktisk bliver opkrævet på sin gæld, kan vi
bruge denne.
- Hvis selskabet har en udestående obligation kan vi finde markedsrenten på denne:
NPV :
3 3 103
+ + =89
1+ R D ( 1+ R D )2 ( 1+ R D )3

95
 ⇕ Ligningen løses for R_D vha. CAS-værktøjet WordMat.

R D=0,072074659≈ 7,21 %

Kapitalstrutktur (WACC)

- Selskabets vægtede gennemsnitlige kapitalomkostninger er det vægtedde gennemsnit af

egenkapitalomkostningerne og fremmedkapitalomkostningerne.
- Det er afkastet, som selskabets investorer som minimum forventer baseret på aktivernes
risiko.

96
 D
=0,6 → E=1 , D=0,6
E
V =E + D→ 1+0,6=1,6
D 0,6
=
V 1,6

1 0,6
WACC = ·18 % + · 10 % · (1−35 % ) =0,136875 ≈13,68 %
1,6 1,6

WACC kan også ses som en ”omkostning” for selskabet.

Økonomisk profit -
”Almindelig” profit

WACC skal benyttes inden for samme branche, for at man kan udtale sig om den.
Virksomhedens WACC er afgørende for at se om en investering er rentabel.

Man kan bruge CAPM til at beregne WACC, hvis man har forventet afkast.

97
Hvis man investerer WACC i alt, ender man med at investerer i meget risikofyldte projekter, da
man udelukkende sammenigner på forventet afkast.

Emissionsomkostninger
- Når et selskab skal skaffe kapital til en ny investering skla den kapital som hentes både
dække investeringen + emissionsomkostningerne:
investering
1+ f a

Hvis emissonsomkostnignerne er på 5% af den rejste kapital, så skal et selskab altså skaffe

1
=1,0526 krone i kapital pr. krone selskabet vil investere.
1−0,05

Eksempel:

0,6 · 0,08+0,40 · 0,08=0,068

20
=21,46 mio kr .
1−0,068

98
Fremskaffelse af egenkapital

-Underwriters
o For at sælge værdipapirer og rejse ny kapital anvendes underwriters
o Underwriteren kan bidrage med:
 Ekspertviden
 Prissætning af aktierne
 Sikkerhed for at aktierne bliver købt.
o IPO (initial public offering)
o SEO (seasoned equity offering)
General cash offer eller rights issue

- General cash offer

Underpricing

99
 - Når et selskab vil børsnoteres skal den sælge sine aktier til offentligheden og vælge hvad
prisen den vil sælge dem til.

Tegningsretter

Bavarian eksempel :

100
 E
P=
aktier
E=32· 205,7=6.582,4 mio .
32· 4
Ny udstedte aktier i værdi :109 · =2.790,4 mio
5
32 · 4
nye udstedte aktier : =25,6
5
6.582,4+ 2.790,4
P= =162,72 kr .
32+25,6

Tegningsret :

101
 162,7=109+5 ·T
⇕ Ligningen løses for T vha. CAS-værktøjet WordMat.

T =10,74

Egenkapital og fremmedkapital

- Jo mindre WACC bliver, desto højere bliver NPV (maksimering af selskabets værdi)

E D
Dette kan gøres ved at skrue ned på og
V V

Finansiel gearing

Ens risiko bliver forøget da man tager et lån, hvor man stiller sin egenkapital som sikkherhed.
Dette sker inden for flere typer investeringer, og medfører tilsvarende mulighed for stort afkast.
Resultat
ROE=
V
Resultat
EPS= → indtjening per aktie−hvor meget investorer er villg til at betale for en aktie
Aktier

Markedsværdien af et selskab er uafhængigt af selskabets kapitalstruktur:

V L=V U

Egenkåaotaæens afkastkrav stiger efterhånden som den finansielle gearing af aselskabet ( DE )øges,
således at WACC forbliver konstant.

102
 - Når gælden stiger bliver egenkapitalen mere risikabel, hvilket gør at afkastkravet for
egenkapitalejerne vil stige:

- Efter at afkastkravet til egenkapitalsejerne R E er øget kan vi indsætte den nye R E i WACC-
formlen og tjekke at WACC er uændret:
E D
WACC =R A= · R E + · R D
V V

Eksempel:
R E=15 %
R D=5 %
E=50 %
D=50 %
1) Hvad er selskabets WACC?
E D
WACC = · RE+ · RD
V V
WACC =50 % ·15 % +50 % · 5 %=0,1 ≈10 %

103
 Dette svarer til at vi bevæger os til højre, at vores R E stiger.

2) D=75 % , E=25 %

0,75
R E=0,1+ ( 0,1−0,05 ) · =0,25 ≈ 25 %
0,25
Vi indsætter vores nye egenkapital i WACC
V =E + D=0,25+ 0,75=1
0,25 0,75
WACC = +0,25+ · 0,05=0,1≈ 10 %
1 1

MM Propotion med skat

I en verden med skat er markedsværdien af det gearede selskab det samme som det ugearede
selskab + kapitalværdien af skatteskjoldet.
V L=V U + PV ( sparet skat )
Ved antagelse af et evigtløbende lån
V L=V U +T C ∗D
D· R D∗T C
hvor skattessatserne går ud med hinanden →
RD

Jo mere gæld jeg påtager mig jo stærre er værdien af selskabet, da vi kan lave skattetrækninger af
rentebetalingerne. Jo mere rentebetaling desto mere skattetræk.

104
 Gearingen sker som følge af at vi mindsker WACC. Når WACC falder over tid stiger
markedsværdien på virksomheden.
Eksempel:

D
ratio=1,5
E
WACC =12%
R D=12 %
T =35 %
1)
E D
WACC = ∗R D + · RD∗(1−T )
D V
E 1
hvor : =
V 1+1,5

1 1,5
WACC = ·R + · 0,12· ( 1−0,35 ) =0,12
1+1,5 D 1+1,5

105
 ⇕ Ligningen løses for R_D vha. CAS-værktøjet WordMat.

R D=0,183≈ 18,3 %
selskabets egenkapitalomkostning: 18,3%
2)
0,183=RU + ( RU −0,12 ) · 1,5 · ( 1−0,35 )
⇕ Ligningen løses for R_U vha. CAS-værktøjet WordMat.

RU =0,151898734 ≈ 15,14 %

Selskabets ugearede egenkapitalomkostninger: 15,14%

3)
R E=0,1514+ ( 0,1514−0,12 ) ·2 · (1−0,35 )=0,19222≈ 19,222 %
1 2
WACC = · 0,19222+ ·0,12 · ( 1−0,35 )=0,116073≈ 11,607 %
1+2 1+ 2
Når gearingen øges, så falder WACC. Derfor skal vi heller ikke diskontere ligeså hårdt, altså
mere lempeligt.

106
Forelæsning 15 del 2

Den statiske kapitalstrukturteori

107
108
109
 V L=V U + PV ( sparet skat )
V L=V U + D T C
2 mio· (1−0,32 )
V U= =9.7142 mio selskabets værdi hvis vi ikke har noget gæld.
0,14
D·T C =3 mio· 0,32=0,96 mio .
V L=9,7142+ 0,96=10,6742 mio .

V =E + D
E=V −D
E=10,6742−3=7,6742mio

D 3
R E=R U + ( R U −R D ) ·
· ( 1−T C ) =0,14+ ( 0,14−0,05 ) · · ( 1−0,32 )=0,1639243178
E 7,6742
E D 7,642 3
WACC = · Re + · R · · ( 1−T )= · 0,16392430+ · 0,05 · (1−0,32 )=0,1269097116
V V 10,6742 10,67942

110
Aktietilbagekøb eksempel

1)
E 4022mio
P= = =1,68 kr .
Aktier 2400 mio

1000 mio
Antal aktier købt= =596,72 mio
1,68

2)

Udestående aktier efter=2400 mio−596,72 mio=1803,28 mio

3)
E 4022mio−1000 mio
P= = =1,68 kr .
Aktier 1803,28 mio
Den påviser altså at der ikke er mulighed for abitrage, vi ender ikke med en større formue, hvis vi
beholder aktierne eller hvis vi sælger dem.

111
Aktiesplit eksempel

likviditetsstyring

112
BAT-modellen

Eksempel

C ¿=
√ 2T·F
R

C ¿=
√(2 ·1.200 .000 · 26)· 1.000
10 %
=789.936
Dette er beløbet som vi fylder vores konto op med hver uge. Det er dette punkt hvor vi minimerer
vores kapaictetsomkostnigner for vores likividtetsbalance.

113
Kreditstyring

Eksempel:
1. mister 1 periodes salg
sælger 91 ·3850=350.350
2. producerer flere enheder
47 · 90=4230
3. Ekstra salg ved at skifte

114
 Før: ( 91−47 ) · 3850=169.400
Efter: ( 94−47 ) ·3940=185180
Ekstra salg = 185.180−169.400=15.780
15.780
NPV = =631.200
0,025
Samlet NPV ¿ 631.200−350.350−4230=276.620

Således en positiv NPV ved ny kreditpolitik.

115
EOQ

Eksempel

¿
Q=
√ 2 T·F
CC

116
 Q=
¿

√
2 · (2500 · 52 ) · 1700
9
Antal varer vi bestiller pr gang vi laver en bestilling 7007,932
≈ 7007,932

Q 2500
Carriying cost: ·CC = · 9=11.250
2 2

Restocking = F ( QT )=1700 ·( 2500·

2500 )
52
=88 . 400

Lagerstyringspolitikken er ikke optimal. Da restocking og CC skal være lig hinanden.

117
Multiple choice

E D
WACC = · R + · R ( 1−T C ) =¿
V E V D
1 0,25
· 0,14+ · 0,07 · (1−0,32 )=0,12152
1,25 1,25

I 0=400.000
C F 1=120.000
C F 2=240.000
C F 3=240.000

120.000 240.000 240.000

NPV =−400.000+ + + =67.940
( 1+0,12152 ) ( 1+0,12152 ) ( 1+0,12152 )3
1 2

118
 1)
5000
Udbytte pr. aktie ¿ =25
200
P=40−25=15
E ( 40 · 200−5000 )
P= = =15 kr
aktier 200

Formue:

Før: 1 aktie til 40

Efter: aktier til 15
Kontanter 25
Samlet 40

Earnings
EPS ¿ →uændret
aktier

P 40
Før = =42,1
E 0,95
P 15
Efter = =15,8
E 0,75

P/E er afhængig af kapitalstrukturen, og ikke afgørende for værdien af selskabet. Aktier med høj
P/E er ofte gearet.

Aktietilbagekøb:

5000
Aktier ved tilbagekøb: 200− =75
40

119
 E 3000
P= = =40
aktier 75
Formue:
Før: 2 aktier + 40
Efter: 2 aktier + 40
eller
kontanter = 40

2)

Earnings 0,95· 200

EPS= = =2,533
aktier 25
P 40
= ≈ 15,79155
E 2,533

i) C ·=
√
2T·F √ 2 ·500.000 · 52¿ · 500
R
C
=
721.110
5%
¿=721.110

Opportunity cost ¿ ∗R= ·0,05=18.028

2 2
Trading cost=
T
C( ) · F=
52· 500.000
721.110
· 500=18.028
Total cost=18.028+18.028=36.056

Kapitel 18 (corporate finance)

Bid/Ask - forskel er transaktionsomkostningerne til banken/brokeren.

Importører har glæde af en appreciering af den danske krone (et fald i valutakursen på dollaren ift
til den danske krone)

120
Når USD går op i forhold til den danske krone, vil man sige at den danske krone deprecierer ift
USD.

Valutahandel bliver gjort i et Over-the-counter marked og derfor ikke et noteret marked. Derfor kan
man heller ikke se hvor meget der bliver handlet for.

Spot-handel = køb og salg af valutakurser lige nu.

121
Valutakontrakter

Forwardhandler = terminshandler.

FX swap:
- Når vi bundtler de to kontrakter, som bundtler vi dem til en kontrakt, så sparer man noget
compliance, transaktionsomkostninger etc. Således er det billigere at sammensætte til en
kontrakt.
Valutaswap:
- Sparer transaktionsomkostninger.

122
Triangulær arbitrage

123
 Abitrage muligheder bliver elimineret i virkeligheden, hvorfor der ikke er mulighed for at
tjene penge på dette. Således

Købekraftspariteten

- Samme vare skal koste det samme når der måles i samme valuta.

124
125
Danske kroner skal appreciere med 17,02 % for at der er købsparitet for en BigMac

5,51−6,64
≈−0,170180723≈−17,02 %
6,64
Den danske krone er undervurderet

6,5−7,32
≈−0,112021858 ≈−11,2%
7,32
DKK skal apprciere med 12% for at opnår PPP.

126
Relativ PPP

127
Danmark skal depreciere, da vi ser en stigning i inflationen hos Danmark kontra USA.

128
129
130
131
Den præcise formel for bevis om der er arbitrage:

Vi ser at foward rente premiuems og inflationsrenten følger, hvorfor ikke-abitrage betingelsen

holder.

132
133
Hvis Rentepariteten, PPP og UFR holder, så vil den nominelle rente i land 1 - inflationen i land 1 s=
nominelle rente i land 2 - inflationen i land 2.

Opgave

134
Udenlandsk valutametode:

135
Indenlandsk valutametode:

Kapitel 20
Finansiel risiko

- Eksponering
o Ændringer i værdien af en virksomhed, når en given pris ændrer sig.
 Fx aktier.
- Afdækning:
o Reduktion af eksponering
 Indgåelse af kontrakt, der mindsker følsomheden af virksomhedens værdi
overfor ændringer i priser.

136
 - Hældningen viser eksponeringen.

- Flyselskab og olieselskab kan eliminere eksponering ved at aftale en fast pris og dermed
indgå en kontrakt og dermed være afdækket.

Man afdækker fordi, at

- Voldsomme prisændringer kan presse cash flow (værdien på ens virksomhed)

Foward-kontrakter

137
At indgå en forward kontrakt er en kontrakt om en fast pris i fremtiden man skal betale, hvorfor den
kan være positiv hvis den er under den reale valutakurs til det givne tidspunkt og vice versa. Altså
er der er en optionspræmie.

F=7
Dette er værdien på en foward-kontrakt på dollars.

S1=8
Her er vi glade, fordi vi tjener penge på vores afdækning
S1=6
Her er vi sure, fordi vi mister penge på vores afdækning.

Futures

Basalt set som en foward: bliver i dag enige om en pris vi kan købe til i fremtiden.
Fowards: Futures

- Over-the-counter (handles ikke på en - Handles på børser

reguleret markedsplads, det gøres fx
direkte gennem banken)

- Kan bliver tailor-made (designes - Standardiseret produkt

fuldstændig som en virksomhed
ønsker)

- Svært at gå ud af kontrakten. Hvis man - Der er handlesvolumen (likviditet) og

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 vil ud af kontrakt inden, skal man Kan således sælges hele tiden
betale en omkostning. (fleksibel)

- Betaling finder sted ved udløb - Opgørelse, og betaling af daglig

genvist/tab

- Små virksomheder benytter disse - Store virksomheder benytter disse

Swaps

- En serie af forward kontrakter

- Vi veksler USD for EUR om én måned, om to måneder, om tre måneder,…
- Vi veksler en variabel rente med en fast rente
o Jeg betaler fast rente til modpart og modtager variabel rente fra modpart
o God idé hvis man har fået en god deal for et variabelt forrentet lån, men vil have et
fast.
o Hvis modpart har fået en god deal for et fast forrentet lån, men vil har et variabelt
o Vi bytter…

Eksempel:

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