FINANCIAL THEORY

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FINANCIAL THEORY

THE COST OF CAPITAL

CALCULATING WACC

The value of the company is determined by the NPV of its future cash flows

CAPITAL ASSET PRICING MODEL

DIVIDEND GROWTH MODEL

DISCOUNTING AND THE VALUE BONDS

NET PRESENT VALUE

DISCOUNTED CASH FLOW

THE EFFICIENT MARKET HYPOTHESIS

THE STRONG FORM

Current prices reflect all the available information which could be known.

THE SEMI-STRONG FORM

All published financial information is already included in the current share price.

THE WEAK FORM

All historical price information is incorporated into current share prices.

THE DIVIDEND THEORY

If a change in dividend policy is to have no effect on share value this change must cause an equal but opposite change in the expected capital gain component of total return.