All Questions
Tagged with corporate-finance finance
41 questions
1
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Why is the Modigliani-Miller theorem logical?
Quoting this SE question, who put it nicely, the M&M theorem basically states that:
...in a no-frictions world, two identical firms have the same enterprise
value, regardless of their financial ...
- 111
2
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2
answers
412
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How to prove the value of a European Call Option is convex on the underlying’s price?
I know the payoff of a European Call at expiration is $\max\{S_T - K,0\}$, where $S_T$ is the underlying price at expiration and $K$ is the strike price.
I want to prove convexity of the value of a ...
- 2,351
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0
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46
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Why would a company file for bankruptcy now when it can always do so later?
Taking FTX as an example, I know they took depositors' funds, send them to SBF's other company Alameda Research which then made risky crypto investments and failed.
This made FTX hold less assets than ...
- 2,351
3
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1
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Modigliani & Miller with taxes: how is this equation derived?
I am looking at Modigliani & Miller Proposition II with corporate taxes. According to Hillier et al. "Fundamentals of Corporate Finance" (3rd ed., 2017) (here is a link to a slightly ...
- 2,611
2
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1
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753
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Understanding Modigliani & Miller: different graphs in different textbooks
I am comparing two textbook's presentations of capital structure and Modigliani & Miller propositions. The first one is Berk & DeMarzo "Corporate Finance" (5th global ed., 2019), the ...
- 2,611
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1
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41
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What does it mean by the statement "a corporation looses money if it produces more than its value"
Recently I was reading a book on corporate finance titled "corporate finance for dummies". Here in the introduction page the author has given a definition for corporate finance, followed by ...
- 21
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1
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1k
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Calculating Tobin's q from the financial statements of publicly listed companies
I'm interested in doing some empirical analysis of firm's investment behavior using financial statements (such as asset, working capital, operating cost, etc). One variable I want to manually ...
- 379
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0
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25
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Is there any reference for labour finance?
Is there any recent reference for labour finance, in which labour finance relating to financial statements? And what are the alternative name for "labour finance"?
- 1,170
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1
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616
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Shouldn't corporate tax be calculated based on EBIT instead of EBT?
When I was studying Corporate Finance in university, I was surprised to learn that it is more advantageous for corporations to take more debt (even if they don't need to) because it creates tax shield ...
- 115
1
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1
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75
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Where to learn financial modelling concepts and skills?
I'm looking to learn more about the financial analysis of a business. Things like unit economics calculation, income statement, free cash flow analysis, a valuation calculation, etc.
Can you recommend ...
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2
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1
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182
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Who holds the Reverse Repo and Repo respectively in a Repurchase Agreement?
According to investopedia.com in this definition
A reverse repurchase agreement, or "reverse repo", is the purchase of
securities with the agreement to sell ...
user27846
1
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1
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515
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Risk neutral probability for each of 3 states
I need help to find the risk-neutral probability for states 1,2 and 3
I have two stocks: A and B.
The price of A today is 180 and in a year it will be worth 288 (S1), 180 (S2) or 120 (S3);
The ...
- 11
1
vote
1
answer
552
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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 ...
2
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2
answers
115
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Does a private company that is 100% financed by a bank loan have a WACC equal to the interest rate?
When estimating a company's Cost of Debt for a Weighted Average Cost of Capital (WACC) calculation we normally look into its bond yield. But for a private company with 100% debt capital structure, ...
- 237
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1
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83
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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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1
answer
1k
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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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1
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565
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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 ...
2
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2
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335
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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 ...
user20317
1
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1
answer
70
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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 ...
- 253
3
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1
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80
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Why do companies sit on cash while they have debt?
Why don't they use cash to pay down their debts?
- 253
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1
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93
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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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1
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42
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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 ...
- 3
3
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2
answers
226
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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 ...
- 1,344
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0
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70
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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 ...
- 649
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3
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331
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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 ...
- 149
1
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0
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66
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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 ...
- 111
1
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1
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108
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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 ...
- 113
0
votes
1
answer
25
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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 ...
- 266
0
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1
answer
157
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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?...
- 133
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2
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441
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Foundational equations or concepts of Finance
The following is paraphrased from: Fundamental equations in economics
For the other sciences it´s easy to point to the most important equations, inequalities, propositions or concepts that ground the ...
- 370
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0
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79
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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 ...
- 151
1
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1
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105
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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 ...
- 649
1
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2
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3k
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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 ...
8
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1
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164
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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 ...
- 141
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3
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2k
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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 ...
- 205
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1
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7k
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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 ...
- 165
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0
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84
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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 ...
- 201
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2
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484
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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?
user4574
1
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0
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44
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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 ...
- 10.8k
8
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1
answer
2k
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Deriving the Modigliani--Miller Theorem
In the Wikipedia article on the Modigliani--Miller theorem, it states two propositions. (It gives the cases of with and without taxes. Here I'll just focus on the case without taxes.)
The first ...
- 9,385
3
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3
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2k
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Deriving and explaining the weighted cost of capital
The Wikipedia article for the "weighted cost of capital" (WACC) defines the WACC
as "the rate that a company is expected to pay on average to all its security holders to finance its ...
- 9,385