(WMCC) analysis of breakpoints in weighted marginal cost of capital schedule
Overview of cost of capital: meaning and relevance of cost of capital: the firm’s overall cost of capital weighted average cost of capital (WACC) and weighted marginal cost of capital. The nature of financing decision, principle objectives of making financing decision. Evaluation of portfolio performance: Treynor’s measure, Sharpe’s measure, Jensen’s measure, appraisal ratio measure, information ratio, Modigliani and Modigliani (M2). The Arbitrage pricing model (APM) and other multifactor models: background of the theory conceptual differences between the Capital asset pricing model and the Arbitrage pricing model application of the Arbitrage pricing model, shortcomings of Arbitrage pricing model Pastor Stambaugh model. 
Shortcomings of the capital asset pricing model. Portfolio theory and capital asset pricing model 
beta coefficient of an individual asset and that of a portfolio and the interpretation of the result security market line(SML) model and its applications conceptual differences between. Capital Asset Pricing Model-CAPM : background of the theory assumptions beta estimation. The modern portfolio theory: background of the theory portfolio expected return the actual and weighted portfolio risk derivation of efficient sets the capital market line (CML) model and its applications, the mean variance dominance rule short comings of portfolio theory. The real options-strategic investment option, timing option, abandonment option and the replacement option. Evaluation of projects of unequal lives. Incorporating inflation in capital investment appraisal. Incorporating capital rationing in capital investment appraisal. Techniques of handling risk: sensitivity analysis, scenario analysis, decision trees, simulationĪnalysis, utility analysis, risk adjusted discounting rate(radr) and certainty equivalent method. Nature and measurement of risk and uncertainty. Incorporating risk/uncertainty in capital investment decisions. Download Advanced Financial Management PDF notesĬONTENT 1.
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