INTRODUCTION

Learning objectives - 1

Summary - 2

Acknowledgements - 3

Chapter 1
FUNDAMENTALS OF FINANCIAL MATHEMATICS

1. Core Definitions and Concepts - 7
1.1 Variations in the Value of Money - 8

2. Interest - 12
2.1 Simple Interest - 13
2.2 Compound Interest - 17
2.3 Continuous Interest - 21

3. Interest Rates - 23
3.1 Types of interest rates - 23
3.2 Factors that Affect the Interest Rate - 28

4. Annuities or Uniform Series - 31
4.1 Types of Annuities - 33

Summary - 39

Exercises and SolOLutions - 42

Applied Exercises - 60

References - 61

Chapter 2
COST OF CAPITAL

1. Factors determining the cost of capital - 69
1.1 Economic Conditions - 69
1.2 Market Conditions - 70
1.3 Financial and Operational Conditions of the Company - 71
1.4 Total Debt - 72

2. Key Insights from Oscar Leon García on the Cost of Capital - 74

3. Basic Assumptions of the Cost of Capital Model - 75
3.1 The Economic Risk Does Not Vary - 76
3.2 The Capital Structure Does Not Vary - 76
3.3 Dividend Policy Does Not Vary - 77
3.4 The Company Will Continue to Be Financed in the Same Way in the Future - 77

4. Breaking Down the WACC Weighted Average Cost of Capital: A Comprehensive Guide - 78
4.1 Capital Structure - 78
4.2 Cost of Debt - 84
4.3 Cost of Equity - 95

5. Weighted Average Cost of Capital - 119

Summary - 121

References - 123

Chapter 3
VALUE CREATION, FCF, EVA, NPV, IRR

1. Working Capital - 128
1.1 Accounting Definition of Working Capital - 129
1.2 Financial and Managerial Definition of Working Capital - 130

2. From FCF to FCFF and FCFE - 132
2.1 Historical Free Cash Flow Estimation - 133

3. Effect of NWC in FCF and Company Value - 139

4. Forecasted Free Cash Flow - 144

5. Economic Value Added (EVA) - 146

6. EVA vs. ROI - 148

7. How to Improve EVA - 152

8. Net Present Value (NPV) - 153
8.1 From the Assumptions of the Net Present Value NPV - 155
8.2 Considerations for Projecting Expected Flows - 155

9. I internal Rate of Return (IRRirr) - 156

Summary - 157

Applied Exercises - 160

References - 162

Chapter 4
FINANCIAL STRUCTURE AND CAPITAL STRUCTURE

1. Factors Influencing Financial Structure Decisions - 167
1.1 Financial Leverage - 167
1.2 Growth Potential in Business - 168
1.3 Stability in Profit Margins - 168
1.4 Nature of Assets - 169
1.5 Financial Autonomy and Control - 169
1.6 Availability of Credit Funds - 169
1.7 Risk Attributable to Investments - 169
1.8 Tax Aspects - 170

2. Analysis of Long-Term Debt Financing (Loans and Bond Issuance) - 170
2.1 Advantages of Debt Financing - 171
2.2 Disadvantages of Debt Financing - 172
2.3 Additional Considerations Specific to Indebtedness - 173

3. Analysis of Equity Financing - 176
3.1 Preferred Stock - 176
3.2 Common Actions - 178
3.3 Retained Earnings - 180

4. Exercises and solutions - 180

Summary - 194

References - 196