Questions tagged [corporate-finance]
The corporate-finance tag has no usage guidance.
62
questions
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Economic Profit and the Return on Invested Capital
In my finance classes, I always learned that the a firm earning an "economic profit" is one for which its return on invested capital (ROIC) is greater than it's opportunity cost of capital (usually ...
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20 views
Financial Economics and Corporate Finance
In pg 4 of Principles of Corporate finance (Allen et al, 2017), in the context of explaining financing decisions are less important that investment decisions, there is a line that says:
"Financial ...
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0answers
13 views
Corporate finance - capm beta estimation
I want to solve the following problem as an exercise to test my understanding of the capm material:
Assume that CAPM is valid. The market portfolio consists of 3 stocks such that $i = A, B, C$ with ...
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0answers
43 views
Why was the Glass-Steagall Legislation enacted?
I realize that the part of the reason the Glass-Steagall act was enacted was to ensure that banks do not invest customer's deposits into risky securities, but what was the rationale for separating ...
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18 views
Best way to measure company size relative to world GDP
I'm working o a model where corporate revenue / world GDP is a dependent variable of some stuff (based on the model proposed in this paper: http://www.scielo.br/scielo.php?pid=S1807-76922009000200002&...
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1answer
36 views
Corporate Finance Book Recommendations
Can you share your recommendations for corporate finance if you have any?
A slightly more detailed version would be better:
For example, something like:
Advanced Undergrad: Varian's $\textit{...
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1answer
30 views
How to calculate capital investment?
So i have this question:
After spending 3 million on research, Better Mousetraps has developed a new trap. The project requires an initial investment in plant and equipment of 6 million. This ...
0
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1answer
51 views
Interpeting equivalent annual cash flows
So i have this question:
RainMan Inc. is in the business of producing rain upon request. They must decide between two investment projects; a new airplane for seeding rain clouds or a new weather ...
0
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1answer
11 views
Relevance of change in Inventory in calculation of Free Cash Flow
Free cash flow (FCF) can be obtained by
$$
\text{FCF}=(\text{Revenues}-\text{Cost}-\text{Depreciation})(1-\tau)+\text{Depreciation}-\text{Capital Expenditures}-\Delta(\text{Net Working Capital})
$$
...
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2answers
116 views
Does commercial paper usually carry a higher yield than corporate bonds? Why?
In Banking: A Very Short Introduction, Goddard and Wilson write:
[Commercial paper] usually carries a higher yield than corporate bonds.
But aren't corporate bonds longer term than commercial ...
4
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1answer
38 views
Can corporate tax loss carryforward function like a sort of insurance policy?
I'm a graduate student in mathematics, with a casual knowledge of economics, so please let me know if this question is a non-sequitur or off base.
Here's the intuition I'm trying to capture: Suppose ...
0
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1answer
46 views
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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1answer
37 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
57 views
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1answer
60 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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4answers
85 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
34 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
51 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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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
138 views
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 ...
2
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1answer
484 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
28 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
62 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 ...
1
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1answer
48 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
72 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
24 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 ...
0
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1answer
54 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
40 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
66 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 ...
2
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2answers
753 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
votes
1answer
182 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
3k 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 ...
5
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2answers
214 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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52 views
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
46 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
80 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 ...
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2answers
169 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
77 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
1k 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
1k 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
50 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, ...
8
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1answer
108 views
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
115 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
...
5
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3answers
1k 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 ...
2
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2answers
225 views
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
86 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
612 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, ...
