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 $$Rate,of,return_{annual}=\frac{Return - initial,investment}{Initial,investment}=\frac{Gain}{Initial,investment}$$
Ex: Invest £100k, return £50k
$$Rate,of,return_{annual}=\frac{50-100}{100}=-50%$$
Future Value $$Future,value=Present,value\times(1+rate,of,return)$$
Compounding Future Value $$FV_{t,years}=PV\times(1+r)^t$$
Ex: Invest £100k, RoR = 10%
$$FV_2=£100k\times(1+0.10)^2=£121k$$
Present Value $$PV=\frac{FV}{(1+r)^t}$$
Ex: £150k return in 2 years at 10% RoR
$$PV=\frac{£150k}{(1+0.10)^2}=£124k$$
Opportunity cost of capital = alternative investment RoR
$$PV=\frac{C_1}{(1+r)^1}+\frac{C_2}{(1+r)^2}+\frac{C_3}{(1+r)^3}+…$$
Ex: Return of £110 in 1 year, £121 in 2 years, cost of capital = 10%
