ACTSC372 Study Guide - Midterm Guide: Net Present Value, Capital Market, Opportunity Cost

• School: University of Waterloo
• Department: Actuarial Science
• Course: ACTSC372
• Professor: Javid Ali

Document Summary

Chapter 1 net present value and other investment. Npv approaches: a project a set of cash ows can be valued by nding the present value of these cash ows. Npv = pv of cash- ow pv of cash-out ow. [question 1] a rm is considering invest into a project today and it can generate the next year (i = 6%) Npv = + ( / 1. 06) = sh. 94 > 0 => accept. Interpretation: accepting positive npv projects bene t the stockholders. There are actually two options that the rm can choose: First, the rm pays out dividend today by , and the stockholders invest with. The value of the rm is merely the sum of the values of the different projects, divisions, The contribution of any project to a rm"s value is simply the npv of the project entities, etc => value additivity. Also, in this case that we assume the project is riskless.