Questions tagged [corporate-finance]
The corporate-finance tag has no usage guidance.
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How can a company run out of cash when its stock prices is dropping?
For instance, in 2008, the Royal Bank of Scotland saw its stock price drop by ~30% in a day, and it was apparently impossible for the bank to make it till the end of the day because it would run out ...
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0answers
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Relationship between expected return and price of asset
In the CAPM model, suppose there is an asset for which expected return is too low for its risk. For arbitrage not to exist, investors should move away from this asset, lowering its price until the ...
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1answer
29 views
Black-Scholes Model question
Suppose a company has a zero coupon bond with face value of 200 million which matures in a year. Its assets has a market value of 300 million. The standard deviation is 30% and the risk free rate is ...
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1answer
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1answer
43 views
Present Value Analysis
For my exmaple, we have machine A with an initial cost of 15K and O&M of 2k per year for the next 4 years. After 4 years, the O&M rise to $2.7k per year. No salvage value and life span of 20 ...
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0answers
18 views
Do ads work for businesses as they used to and how can they be measured if it's possible?
The gist of Seth Godin's 'Purple Cow' is that advertisements don't work any more.
As marketers, we know the old stuff isn't working. And we know why:
because as consumers, we're too busy to pay ...
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0answers
20 views
Why's 'railroad consolidation through the issuance of bonds in payment for the stocks of the railroads acquired' dangerous?
Source: The Betrayed Profession (1994), pp. 12 Bottom - 13.
Even those whose firms fought persistently against all social
legislation, getting much of it declared unconstitutional, re-
[p. 13:...
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4answers
75 views
How should I evaluate my startup?(specific question)
If I have a startup that produces a product that I estimate to sell 100/per month, with 50%profit, and $200 is the customer price of each product, How can I evaluate this business to find investors?
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1answer
29 views
If I have a £25,000 loan, in a balance sheet do I include it in the Cash as well as a liability? [closed]
I'm new to all this and balance sheets are extremely confusing.
In this example I've received a £25,000 loan from the bank, it has a fixed interest rate of 6% to be paid over 1-5 years.
This is the ...
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2answers
39 views
Where are bank loans in balance sheet?
I am looking at the balance sheet of Coca-Cola (https://www.marketwatch.com/investing/stock/coke/financials/balance-sheet), but I cannot guess where loans with banks are. These liabilities accounts ...
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0answers
23 views
Best texts on cash usage and share buybacks in companies
What would be a good reference for how companies utilise their cash to conduct share buybacks. I am trying to understand how share buybacks affect the valuation of a company.
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0answers
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Why are share repurchases particularly accretive?
From the "Manual of Ideas"...
VALUE CREATION VIA BUYBACKS Share repurchases tend to be particularly accretive in the case of companies generating cash from operations while trading below tangible ...
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3answers
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CAPM goodness of fit
I want to test the CAPM. I have collected monthly data from 1-9-2012 to 1-9-2017. I have data from the return of Standard&Poor's 500 and data from various US companies. The beta's seem right, but ...
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1answer
337 views
Adding a non-binding constraint to the objective function
I am dealing with a constrained optimization problem found in Tirole's Theory of corporate finance. My question is not related to the details of this model, but just to provide some context, we are ...
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0answers
26 views
Corporate use of offshore cash
Recently Microsoft floated a \$17 billion bond to finance the purchase of LinkedIn (remind me to delete my account).
Some might wonder why a company with nearly \$100 billion in cash would need to ...
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0answers
47 views
Confusion about Balance sheet equation and sum of the cashflows
I was solving a business case I had at school where i just needed to compute the cashflows (CF). Once I have done so I wanted to check that my calculations are all good by verifying that the following ...
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1answer
46 views
Is corporate tax an argument in equal income tax (from labour and capital) debate and does the return on capital depend on rate of the corporate tax?
In our country we have 25% personal income tax on labour, 15% corporate tax on corporations and 10% personal income tax on income from capital (e.g. dividends). Pundits in our country are saying that ...
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1answer
51 views
Is the shareholder-creditor conflict the same as debt-equity conflict?
I am having some problems understanding the difference between shareholder-creditor conflict and debt-equity conflict.
I understand what the shareholder-creditor conflict is about, but when I try to ...
0
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1answer
21 views
Basel affecting the bank behaviour?
In EU, Banks have changed their behaviour lately, e.g. as acting liquidity providers to certain markets like notes etc.
Introduction of Basel III is probably one reason (tighter capital and ...
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1answer
50 views
Definition of market to book value?
What is the difference between (market value of equity/book value of equity) ratio and (market value of assets/book value of assets) ratio?
In my opinion both measure fairly the same? Is this correct?...
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2answers
37 views
What happens to a company whose share price goes down to very little over dividend loss?
This is a bit of an edge case scenario.
Let's say you have a company that is very profitable (and pays very high dividends off the profit) but has little/no growth potential.
The company decides to ...
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0answers
53 views
If the company were to buy back all their shares, does that mean the company would own itself? [closed]
If a publicly traded company buys back all it's shares from the public, majority holder and every last person that owns it's shares who would own the company? Obviously, it wouldn't be a normal ...
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2answers
512 views
Why is LIFO allowed in accounting?
I was reading about inventory valuation and of course there is first-in - first-out, last-in - first-out and weighted average. I realized at some point that LIFO would cause the highest Cost Of Goods ...
2
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1answer
144 views
Original data Altman used for his z-score formula
At our university we are researching the usefulness of failing (bankrupticy) prediction models. We are interested in the original datasets Altman used for his models. Does anyone know where this ...
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3answers
2k views
How are shell companies used for tax evasion?
The recent release of leaked documents on Mossack Fonseca has information on corporations and individuals using the firm's services for, among other things, tax evasion:
The massive security breach ...
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2answers
172 views
Foundational equations or concepts of Finance
For the other sciences it´s easy to point to the most important equations, inequalities, propositions or concepts that ground the discipline. If I want to explain Finance to a physicist say, what are ...
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0answers
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Stiglitz 1976 on irrelevance of corporate financial policy
In this paper, Stiglitz gives a verbal argument as follows:
Let us consider verbally what actions of the individuals are required to offset various actions by the firm. Assume the ...
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2answers
43 views
Why do businesses care about rate(s) of change?
I'd like to introduce math-students to the concept of average and instantaneous rate of change, in order to get them interested in the topic.
I found the following example:
Based on data from 1990 ...
2
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1answer
77 views
Academic paper which justifies why companies are run better privately
A few years ago I was reading The Economist and I remember it stated a particular academic paper that underpinned the rationale for the existence of private equity firms. I have tried to find this ...
2
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2answers
152 views
How come websites such as Khan Academy and Anatomy Zone do not charge for their services?
I've noticed that most educational websites do not charge for their services, even if they are maintained by only one or very few people.
Some of these websites are so comprehensive that they require ...
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1answer
62 views
Depreciating companies intangible assets [closed]
Companies intangible assets are something which is not physical e.g. Patents, copyrights etc.
How can we depreciate companies intangible assets and why it is done?
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2answers
744 views
Net Present Value in Nominal Terms
I have the following question from my homework:
When calculating the net present value of an investment project, the firm of Henry & Norman expects profit in the first year to be $60,000, and ...
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1answer
867 views
Why would a cash-rich company borrow money?
I have read that Apple Computer issues corporate bonds.
Considering that it has $200 billion in cash, and the company complains it has been unable to spend its enormous amount of cash, why would they ...
2
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1answer
48 views
negative interest rate lending ripple effects
I was attempt to describe the ramifications of negative interest rates across benchmarks.
I can foresee the business practice changes amongst holders of government bonds, savings accounts, ...
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1answer
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What is the percentage of announced Merger & Acquistion deals actaully completed?
I am assuming that not all M&A deals announced are completed. There are factors such as anti trust laws and consumer protection agencies that legally prohibit the two companies from completing the ...
2
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1answer
109 views
Stock Valuation - Interest rates, Dividends, and Shares Repurchases
I'm reading a macro book (Blanchard's) and the way he values shares is by calculating the net present value of all dividends we expect to receive by owning some stock, discounted by the interest rates ...
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1answer
1k views
How does depreciation affect the cash flow in a tax-paying company?
I came across a question in first year's finance book.The question is:
For a tax-paying firm, an increase in ______will cause the cash flow from assets to increase.
A. Change in net working capital
...
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3answers
912 views
Why was Modigliani-Miller so relevant and innovative when it came out?
The Modigliani-Miller theorem*, a foundation of modern corporate finance, basically states that, in a no-frictions world, two identical firms have the same enterprise value, regardless of their ...
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2answers
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Firms Betas - Equity, Debt betas
My question is related to the following equation:
$$\beta_{asset}=\frac{Equity}{Equity+Debt}\beta_{equity}+\frac{Debt}{Equity+Debt}\beta_{debt} $$
Why can the $\beta_{asset}$ be seen as if the firm ...
2
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2answers
81 views
Why does Walmart (SYMBOL:WMT) have its Q1 2015 end April 30 instead of March 30
The Walmart 10-Q form covers the period for the three months ending April 30th while other companies post their first quarter reports for the three months ending March 30th. Why does Walmart end one ...
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1answer
1k views
Corporate Finance: From External Financing Needed(EFN) to Sustainable Growth Rate
Well in this link I get the EFN definition that I know of, with the spontaneous liabilities term included. I'm trying to derive the Sustainable Growth Rate for a corporation, from this definition of ...
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2answers
403 views
External Financing and Corporate Growth
In a book on Corporate Finance, the author writes that 'all other things constant' the higher the rate of growth in sales or assets, the greater will be the need for external financing(bank loans, ...
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1answer
3k views
Are bank reserves part of M1 or only part of M2, and why?
(1) Toyland earns $$100,000 revenue in cash this week. Toyland managers use this $100,000 to pay down a short-term loan from Bank One. Bank One keeps the cash in reserve. As a result of this ...
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1answer
56 views
Free Cash Flow to the Firm
I've got this question:
Explain why the FCFF does not incorporate interest expenses and what is the potential bias in the valuation if corporate taxes exist.
Now, we know that in the Free Cash ...
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1answer
26 views
Is there an equilibrium between privately owned and publicly listed companies?
Private equity funds are increasingly taking formerly public companies off the exchanges. Is there an economic reason for any public companies to exist and what is the equilibrium share of public ...
2
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0answers
68 views
What topics are important to analyse a financial product? [closed]
When reading analysis papers of financial product, derivative or stock, tangible or not, I noticed that a lot of those papers seem to have similar structures.
This got me to the question if there ...
4
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1answer
88 views
What is the classic paper that derives borrowing constraints from asymmetric information?
In reading the Wikipedia article about the "financial accelerator," I read this
Firms’ ability to borrow depends essentially on the market value of
their net worth. The reason for this is the ...
2
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1answer
180 views
How does the Fama and French 3-factor model explain stock covariance?
Does it at all? If so, how?
It is understood that size and value play a role in determining returns and there are proposed explanation those these, but what about covariance?
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1answer
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Understanding Leveraged Buyout
There is company A, which has Assets = \$100, Equity = \$50, Debt = \$50.
I, Ant, found a new company, company B. I personally invest 10 in this company, and I find people who lend me \$50. Assets = \...
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0answers
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Evidence of firm borrowing and loans
I'm absolutely not from firm financing and look to read up on the subject, but mostly onto empirical stuff.
Standard questions would be:
What is the ratio of firms that finance themselves with bank ...
