CFA Level 1 Corporate Finance E book - Part aracer.mobi - Download as PDF File .pdf) , Text File .txt) or view presentation slides online. mba. Page 1. Level II CFA Program Curriculum. Corporate Finance (1) of 1) mutually exclusive projects with unequal lives, using either the least com-. SCHWESERNOTES™ CFA LEVEL I BOOK 4: CORPORATE FINANCE, . when 1) the redownload is financed with the company's excess cash and 2) the.

Author: | CINDY BOURGOYNE |

Language: | English, Spanish, Hindi |

Country: | Kosovo |

Genre: | Religion |

Pages: | 686 |

Published (Last): | 12.10.2015 |

ISBN: | 195-4-41029-937-3 |

Distribution: | Free* [*Registration needed] |

Uploaded by: | CARTER |

Level 1 Chartered Financial Analyst. You are Smart Summaries for Corporate Finance. Smart Summary, Study Session 11, Reading 36 Capital aracer.mobi CFA SchweserNotes Level 1. Corporate Finance, Portfolio Management, and Equity Investments 4. Файл формата pdf; размером 14,14 МБ. Добавлен. Schweser CFA. Level 1 SchweserNotes Book 4: Corporate Finance, Portfolio Management, and Equity Investments. Файл формата pdf.

As the name suggests, the technique can be used in poker to compute probabilities for a wide array of scenarios but, more importantly for our purpose, it is used extensively in the field of finance. Monte Carlo methods are used to handle both probabilistic and deterministic problems according to whether or not they are directly concerned with the behaviour and outcome of a random process. In the case of a probabilistic problem a simple Monte Carlo approach is to observe random numbers, chosen in such a way that they directly simulate the physical random processes of the original problem, and to infer the desired solution from the behaviour of these random numbers. It then calculates results over and over, each time using a different set of random values from the probability functions. Depending upon the number of uncertainties and the ranges specified for them, a Monte Carlo simulation could involve thousands or tens of thousands of recalculations before it is complete. Monte Carlo simulation produces distributions of possible outcome values. By using probability distributions, variables can have different probabilities of different outcomes occurring. Probability distributions are a realistic way of describing uncertainty in variables of a risk analysis. Monte Carlo in corporate finance In corporate finance for example, a company may need to value a project, which may involve an initial outlay with future expected profits. If these future profits can be estimated accurately then the firm can determine whether these profits will outweigh the costs and can then decide whether to proceed with the project or not. The factors affecting the future profits could consist of many variables, including but not limited to interest rate fluctuations, currency exchange rate changes, macro-economic factors, labour costs, environmental issues or advancements in technology. Since each one of these factors can be multi-dimensional there could be a very large amount of parameters to be estimated, each having its own distribution. Therefore Monte Carlo simulation methods can be implemented. As we will see in the derivatives section, stock options change in value depending on the price of an underlying stock, which itself can be affected by a very large number of factors.

This may take another hours. However, it is always recommended to have completed the exam preparation at least 1 month is advance of the exam date. If you have hours Exam Preparation Time? This may take at max hours and these are a good starting point to prepare yourself for the exam.

Once you have looked at the videos, go through the Schweser notes in detail. Reading Schweser notes will take around hours or so The remaining time if any , you must spend on attempting as many Mock Papers as you can and concept revision.

Please find enough time to practice mock test papers.

If you have hours for exam preparation? My take would be to selectively work on the CFA curriculum book. This would help complete the curriculum at least a month in advance of the exam. During last month review as well, it is advisable to develop and adhere to a study schedule.

Do Not Leave Practice Questions for Later: It is highly recommended to attempt all practice questions at the end of each section instead of leaving it for later. This will help assess the progress you have made and expose the areas of weakness which might require extra effort and study time to be mastered.

Practicing questions would also add to your confidence in what you have learnt and help you get a feel of what you might encounter in the exam. This can create confusion and lack of clarity and it is recommended to continuously refer to the curriculum to stay on the right track for your exam. Prepare Well with a Mock Test: In the month-long curriculum review period prior to exam, it is generally recommended to practice more questions and appear for a mock exam offered by CFA Institute.

This would require you to take a 3-hour morning session test followed by a 2-hour break after which another 3-hour long afternoon session would commence. This is likely to help you prepare well for the exam psychologically as well apart from helping assess the general level of your performance. Additional Learning Techniques: You could make flash-cards to be able to instantly review key concepts in the curriculum instead of carrying around comprehensive material.

The opportunity cost should be charged against a project. Remember that just because something is on hand does not mean it's free. See below for the definition of opportunity cost. Expected future cash flows must be measured on an after-tax basis. The firm's wealth depends on its usable after-tax funds. Ignore how the project is financed. Interest payments should not be included in the estimated cash flows since the effects of debt financing are reflected in the cost of capital used to discount the cash flows.

The existence of a project depends on business factors, not financing. Since sunk costs are not increment costs, they should not be included in the capital budgeting analysis.

That is, the coffee shop will always be losing money. Incremental cash flow is the net cash flow attributable to an investment project. It represents the change in the firm's total cash flow that occurs as a direct result of accepting the project. Externalities are the effects of a project on cash flows in other parts of the firm. Although they are difficult to quantity, they which can be either positive or negative should be considered.

For example, the coffee shop may generate some additional customers for the bookstore who otherwise may not download books there.

Future cash flows generated by positive externalities occur if with the projects and do not occur if without the project, so they are incremental. For example, if the bookstore is considering to open a branch two blocks away, some customers who download books at the old store will switch to the new branch. The customers lost by the old store are a negative externality. The primary type of negative externalities is cannibalization, which occurs when the introduction of a new product causes sales of existing products to decline.

Future cash flows represented by negative externalities occur regardless of the projects, so they are nonincremental. Such cash flows represent a transfer from the existing projects to the new projects, and thus should be subtracted from the new projects' cash flows. Mutually exclusive are investments that compete in some way for a company's resources - a firm can select one or another but not both. Independent projects, on the other hand, do not compete with the firm's resources.

A company can select one or the other or both, so long as minimum profitability thresholds are met. Project sequencing. How does one sequence multiple projects through time since investing in project B may depend on the result of investing in project A? Unlimited funds versus capital rationing.

Capital rationing occurs when management places a constraint on the size of the firm's capital budget during a particular period. In such situations, capital is scarce and should be allocated to the best projects to maximize the firm's aggregate NPV.

The firm's capital budget and cost of capital must be determined simultaneously to best allocate the firm's capital. On the other hand, a firm can raise the funds it wants for all profitable projects simply by paying the required rate of return.

Investment Decision Criteria CFA - Corporate Finance E-book 1 of 7 When a firm is embarking upon a project, it needs tools to assist in making the decision of whether to invest in the project or not. In order to demonstrate the use of these four methods, the cash flows presented below will be used.

The project is accepted if the NPV is positive. Cash outflows are treated as negative cash flows since they represent expenditure that the company has to incur to fund the project.

Cash inflows are treated as positive cash flows since they represent money being brought into the company. The NPV represents the amount of present-value cash flows that a project can generate after repaying the invested capital project cost and the required rate of return on that capital. An NPV of zero signifies that the project's cash flows are just sufficient to repay the invested capital and to provide the required rate of return on that capital.

If a firm takes on project with a positive NPV, the position of the stockholders is improved. Decision rules 1. The higher the NPV, the better.

Reject if NPV is less than or equal to 0. However, it does not measure the rate of return of the project, and thus cannot provide "safety margin" information. Safety margin refers to how much the project return could fall in percentage term before the invested capital is at risk.

The IRR on a project is its expected rate of return. The higher the IRR, the better. Define the hurdle rate, which typically is the cost of capital. Reject if IRR is less than or equal to the hurdle rate. IRR does provide "safety margin" information. Payback occurs when the cumulative net cash flow equals 0.

The shorter the payback period, the better. A firm should establish a benchmark payback period.

Reject if payback is greater than benchmark. Drawbacks It ignores cash flows beyond the payback period. Payback period is a type of "break even" analysis: it cares about how quickly you can make your money to recover the initial investment, not how much money you can make during the life of the project.

It does not consider the time value of money. Therefore, the cost of capital is not reflected in the cash flows or calculations. It considers the time value of money, but it ignores cash flows beyond the payback period.

The payback provides an indication of a project's risk and liquidity because it shows how long the invested capital will be tied up in a project and "at risk". The shorter the payback period, the greater the project's liquidity, the lower the risk, and the better the project. The payback is often used as one indicator of a project's risk. Drawbacks o It does not take into account the time value of money - the value of cash flows does not diminish with time as is the case with NPV and IRR.

Profitability Index PI This is an index used to evaluate proposals for which net present values have been determined.

The profitability index is determined by dividing the present value of each proposal by its initial investment. An index value greater than 1. A ratio of 1.