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Present Values 3
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IntroductionLecture1.1
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SolutionsLecture1.2
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List Comprehension ReviewLecture1.3
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NPV vs. IRR 4
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IntroductionLecture2.1
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The Functions Part 1Lecture2.2
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The Functions Part 2Lecture2.3
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Testing NPV vs. IRRLecture2.4
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Other Profit Measures 4
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IntroductionLecture3.1
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Measures Part 1Lecture3.2
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Measures Part 2Lecture3.3
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Investment TimingLecture3.4
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Depreciation 4
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IntroductionLecture4.1
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The Basic ProblemLecture4.2
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Creating the Depreciation EquationLecture4.3
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The Tax ShieldLecture4.4
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Cash Flow Challenges 9
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IntroductionLecture5.1
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Total Cash FlowsLecture5.2
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Solution 1Lecture5.3
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Solution 2Lecture5.4
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Solution 3Lecture5.5
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Solution 4Lecture5.6
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Solution 5Lecture5.7
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Solution 6Lecture5.8
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Solution 7Lecture5.9
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Capital Asset Pricing Model 3
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IntroductionLecture6.1
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The EquationLecture6.2
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Graphing CAPMLecture6.3
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Risky Debt 3
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IntroductionLecture7.1
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Adjusting Debt for RiskLecture7.2
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SolutionLecture7.3
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Unlevering Equity 3
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IntroductionLecture8.1
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The r for EquityLecture8.2
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Including TaxesLecture8.3
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Weighted Average Cost of Capital 4
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IntroductionLecture9.1
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The EquationLecture9.2
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TaxesLecture9.3
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SolutionLecture9.4
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Debt Effect Analysis 2
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IntroductionLecture10.1
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The Effect of Debt on EquityLecture10.2
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WACC Challenge 2
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IntroductionLecture11.1
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SolutionLecture11.2
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Relative Valuation 4
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IntroductionLecture12.1
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Financial ConceptLecture12.2
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Solving Systems of EquationsLecture12.3
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ArbitrageLecture12.4
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Forward Contract Valuation 3
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IntroductionLecture13.1
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Forward Contract BasicsLecture13.2
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Forward ContractsLecture13.3
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Financial Concept
Let’s say our cash flow we are trying to value is 100 dollars in period 1, and 100 dollars in period 2.
Now let’s also say that this there are these bonds in the market. The negative numbers in period 0 are the prices
| Period 0 | Period 1 | Period 2 |
| -95 | 100 | |
| -85 | 100 |
If we were to add these prices up, we would get that our cash flows should be priced at 180 dollars. Let’s try with these bonds now.
| Period 0 | Period 1 | Period 2 |
| -90 | 100 | |
| -100 | 10 | 100 |
Now to value these cash flows, we would want to buy 1 of the second bond, and .9 of the first bond (100*.9+10=100). The cost would thus be 100+.9*90=181 dollars.
Solving these problems isn’t hard when there isn’t many cash flows, but once there is a lot we need to start using systems of equations and solving for them. For example, if the cash flows from three different bonds were below:
| Period 1 | Period 2 | Period 3 |
| 100 | ||
| 10 | 100 | |
| 5 | 5 | 100 |
Then the system of equations would be:
Year 1 Cash Flow = 100x
1
+ 10x
2
+ 5x
3
Year 2 Cash Flow = 100x
2
+ 5x
3
Year 3 Cash Flow = 100x
3
x
1
= Bond 1; x
2
= Bond 2; x
3
= Bond 3
You would set these equations equal to your cash flows that you want to value.