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Session 13 (MBA): Time Weighted CF returns, Uncertainty and Equity Analysis
Description
In today's session, we started by looking at two time-weighed cash flow returns, the NPV and IRR. We then looked at three tools for dealing with uncertainty: payback, where you try to get your initial investment back as quickly as possible, what if analysis, where the key is to keep it focused on key variables, and simulations, where you input distributions for key variables rather than single inputs. Ultimately, though, you have to be willing to live with making mistakes, if you are faced with uncertainty. We then turned our attention to analyzing a project in equity terms, using a Vale iron ore mine in Canada and in the process faced the question of whether we should hedge risk either at the output or input levels.
Slides: http://www.stern.nyu.edu/~adamodar/podcasts/cfspr16/Session13.pdf
Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session13test.pdf
Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session13soln.pdf
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