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Introduction to Corporate Finance (Columbia Business School)

Introduction to Corporate Finance https://learning.edx.org/course/course-v1:ColumbiaX+CORPFIN1x+1T2023/home Basic Finance Concepts Rate of Return Rate,of,returnannual=Returninitial,investmentInitial,investment=GainInitial,investmentRate,of,return_{annual}=\frac{Return - initial,investment}{Initial,investment}=\frac{Gain}{Initial,investment} Ex: Invest £100k, return £50k Rate,of,returnannual=50100100=50Rate,of,return_{annual}=\frac{50-100}{100}=-50% Future Value Future,value=Present,value×(1+rate,of,return)Future,value=Present,value\times(1+rate,of,return) Compounding Future Value FVt,years=PV×(1+r)tFV_{t,years}=PV\times(1+r)^t Ex: Invest £100k, RoR = 10% FV2=£100k×(1+0.10)2=£121kFV_2=£100k\times(1+0.10)^2=£121k Present Value PV=FV(1+r)tPV=\frac{FV}{(1+r)^t} Ex: £150k return in 2 years at 10% RoR PV=£150k(1+0.10)2=£124kPV=\frac{£150k}{(1+0.10)^2}=£124k Opportunity cost of capital = alternative investment RoR PV=C1(1+r)1+C2(1+r)2+C3(1+r)3+PV=\frac{C_1}{(1+r)^1}+\frac{C_2}{(1+r)^2}+\frac{C_3}{(1+r)^3}+… Ex: Return of £110 in 1 year, £121 in 2 years, cost of capital = 10%