Refresher on Economics and Valuation from a Strategic Management Perspective

These flashcards cover key economic and valuation concepts essential for strategic management.

Valuation

The analytical process of estimating the current (or projected) worth of an asset or a company.

Economic Value

The maximum amount of money or resources an economic agent will pay for a good or service in a voluntary transaction.

Utility

The satisfaction or usefulness of a good or service to meet the needs of a given consumer.

Law of Diminishing Marginal Utility

As consumption of a good or service increases, the marginal utility derived from each additional unit declines.

WACC (Weighted Average Cost of Capital)

The average cost of all types of money that the company received from its investors, used as a discount rate in evaluations.

Hurdle Rate

The minimum level of risk-adjusted return investors require for a specific investment or project.

Intrinsic Value

The true, inherent value of an asset, considered without regard to market factors.

Extrinsic Value

The perceived value of an asset determined by external factors and market conditions.

NPV (Net Present Value)

The difference between the present value of future net cash inflows and the initial investment.

IRR (Internal Rate of Return)

The discount rate that makes the net present value of all cash flows from a particular project investment equal to zero.

Free Market

A market where prices are determined by supply and demand without intervention from a government or other authority.

Private Property

Legal ownership of assets or goods, allowing the owner to use and control them as they see fit.

Voluntary Transactions

Exchanges where both parties agree to terms and engage willingly, crucial for establishing value in economics.

Project Evaluation

The process of assessing the value and feasibility of potential investments or initiatives within a business context.

Discount Rate

The rate used to determine the present value of future cash flows, reflecting the risk of the investment.

Demand

The desire for a product or service backed by the ability to pay for it.

Supply

The total amount of a good or service available for purchase at any given price.