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Strategic
decisions & Working Capital (WC)
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Investment
decisions |
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Modes of diversification
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Inter-Organizational relationships
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Others : |
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Long-Term
Financial decisions |
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Investment
analysis and decision |
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THE SECURITY
MARKET LINE (SML)
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Betas |
Risk
free rate (Rf) |
Return
on Market (Rm) |
Securiy
Market Line (SML) |
| |
0,00 |
5,0% |
14,4% |
5,0% |
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0,10 |
5,0% |
14,4% |
5,9% |
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0,20 |
5,0% |
14,4% |
6,9% |
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0,30 |
5,0% |
14,4% |
7,8% |
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0,40 |
5,0% |
14,4% |
8,8% |
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0,50 |
5,0% |
14,4% |
9,7% |
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0,60 |
5,0% |
14,4% |
10,6% |
| Danone |
0,70
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5,0% |
14,4% |
11,6% |
| Michelin |
0,80
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5,0% |
14,4% |
12,5% |
| Club
Med |
0,90
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5,0% |
14,4% |
13,5% |
| Market |
1,00
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5,0% |
14,4% |
14,4% |
| Renault |
1,10
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5,0% |
14,4% |
15,3% |
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1,20
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5,0% |
14,4% |
16,3% |
| BNP-Paribas |
1,30
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5,0% |
14,4% |
17,2% |
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1,40
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5,0% |
14,4% |
18,2% |
| Alcatel |
1,50
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5,0% |
14,4% |
19,1% |
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1,60
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5,0% |
14,4% |
20,0% |
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1,70
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5,0% |
14,4% |
21,0% |
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An example of Portofolio
| Companies |
Allocation
of funds |
Expected
return |
Beta |
Risk
premium |
Danone |
15 % |
11.58 % |
0,70 |
6.58 % |
Michelin |
20 % |
12.52 % |
0,80 |
7.52 % |
Renault |
28 % |
15.34 % |
1,10 |
10.34 % |
BNP-Paribas |
22 % |
17.22 % |
1,30 |
12.22 % |
| Alcatel |
15 % |
19.10 % |
1,50 |
14.10 % |
| Portofolio |
100
% |
15,19% |
1,084 |
10.19
% |
Market |
|
14.40
% |
1.00 |
9.40
% |
Corporate
Finance Course, Bernard Jaquier, Professor
in Economics & Finance, Ecole Hôtelière
de Lausanne, 2003
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