Corporate Finance Spring 2025 - Session 11: Hurdle Rates Closure and First Steps on Investment Returns

In this session, we first completed our discussion of hurdle rates, by looking at computing market values of debt (drawing on bond pricing), and then talking about when you use the cost of equity and when the cost of capital as a hurdle rate. Our discussion of investment returns began with the “Show me the money” theme from Jerry Maguire, and why we use cash flows, not earnings, in measuring investment returns, After making an argument for the primacy of cash flows, we looked at how a good measure of return is time weighted and incremental and how every investment is a project (small or large). We spent the bulk of the class describing the Rio Disney investment, and then computing the return on capital on that investment, based upon expected revenues and operating income. Slides: https://nyu.box.com/s/v8w3inwa8eif4y94lvey3grylt3bofvc Post class test: https://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session11test.pdf Post class solution: https://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session11soln.pdf