Corporate Finance MBA Spring 2021 - Session 12: First Steps in Investment Returns

In this session, we started on measuring investment returns, drawing on the theme from jerry Macguire (Show me the money). 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. We also looked at what the hurdle rate for the investment should be, drawing on the notion that the discount rate for a project should reflect the risk of that project (business, geography etc.). We ended the class extending the return on capital concept to entire companies to judge the quality of existing investments. Slides: http://www.stern.nyu.edu/~adamodar/podcasts/cfspr21/session12slides.pdf Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session12test.pdf Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/cfovhds/postclass/session12soln.pdf