## Principal Agent Problem Solution

Principal Agent Problem Solution How do we give the agent, the managers, the right incentives to do exactly what the principles, the shareholders want them to do? And that implies that…

## Difference between Accounting Profit and Economic Profit

Difference between Accounting Profit and Economic Profit How does economic profit differ from accounting profit? Here is a very simple example that reflects the difference between accounting profits and economic profits…

## What is Value Based Management?

Value Based Management VBM stands for Value-based management. There are many ways of defining but Value-based management at the end of the day is two things: Number one is trying…

## Who are the Stakeholders?

Who are the Stakeholders? Stakeholders are more or less by definition anybody that has a role to play in the process of value creation. So besides the shareholders, the employees have a…

## Difference between Overbought and Oversold

Overbought Position Overbought means that a bank’s assets and purchases of a particular foreign currency exceed its liabilities and sales of that currency. Oversold Position Oversold means that a bank’s…

## Difference between Interest Rate and Exchange Rate

Interest Rate and Exchange Rate The question of interest rate arises when currencies are borrowed or lent; whereas exchange rates are involved when different currencies are being bought or sold. The…

## Difference Between Hedging and Speculating

What is the difference between Hedging and Speculating? What is hedging? Hedging means avoiding or covering foreign exchange risk. The need of hedging arises because exchange rate fluctuates continuously. Accordingly,…

## Sensitivity Analysis Accounting

Sensitivity Analysis Today I want to turn to sensitivity analysis. In other words, having set up our DCF and having completed all the inputs, now, let's push it around a little bit…

## Decision criteria and free cash flow

Decision criteria and free cash flow Last time we applied our forecast drivers to our free cash flow formula to forecast free cash flows for our tablet project. Today I want to take…

## Forecasting free cash flows

Forecasting free cash flows Today, I want to apply the forecast drivers to the free cash flow formula to forecast free cash flows into the future for the tablet project. Today…

## Free Cash Flow Computation

Free Cash Flows Today I want to talk about free cash flows, a critical element in implementing any of those decision rules. Remember, there are two components to NPV. There are Free…

## Forecast components of free cash flow

Components of free cash flow What I want to do in this lecture is talk about forecast drivers, or the assumptions required to forecast each component of the free cash flow formula…

## Return on investment – ROI

Return on investment - ROI Today I want to talk about return on investment and in particular, what I want to discuss is the strengths and weaknesses of the internal rate of…

## Term structure of interest rates

Term structure of interest rates Last time we talked about interest rates. In particular, we talked about how interest rates are quoted versus how interest rates are used to discount cash flows. We…

## APR and EAR

In this topic, interest rates, I want to start off by talking about interest rate quoting conventions and I want to talk about how to compute the present value and future value…