(Updating) Consulting Cases  Investment
Related Terms and Frameworks
NPV (Net Present Value)
Only investments with a positive NPV should be considered
CAPM (Capital Asset Pricing Model)
Usage
determine an appropriate rate when making NPV calculations.
Calculation
r = rf + β(rm – rf)

r
= Discount rate 
rf
= Riskfree rate of return  Return Rate that can be received with a riskfree investment like U.S Treasury Bills 
rm
= Market rate of return  Return Rate that can be received by investing in a diversified portfolio (S&P 500)
β
Beta of the Investment  a measurement of the risk of an investment compared to the risk of the market as a whole.

β>1
: Investment has more risk than the market. Example: For an investment with a β = 1.29, a 1% increase in the market means a 1.29% increase in the investment value. 
0<β<1
: Investment will tend to move in the same direction as the market. The asset is not as sensitive to market movements. Example: For an investment with a β = .75, a 1% increase in the market means a .75% increase in the investment value. 
β=0
: The investment is not correlated with the market. “Riskfree” assets have β of 0.