Questions tagged [corporate-finance]

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8
votes
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 ...
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 ...
7
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1answer
962 views

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 ...
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 ...
5
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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
205 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 ...
4
votes
1answer
95 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 ...
4
votes
2answers
100 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 ...
3
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3answers
858 views

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 assets." What ...
3
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2answers
542 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, ...
3
votes
2answers
47 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 ...
3
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0answers
16 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 ...
3
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2answers
610 views

How do we explain the difference in average leverage between banks and non-financial firms?

I've been reading a little about the capital structure of banks. For example, in this working paper, "Financing as a Supply Chain: The Capital Structure of Banks and Borrowers" by Gornall and ...
2
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1answer
55 views

Why do companies sit on cash while they have debt?

Why don't they use cash to pay down their debts?
2
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2answers
85 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 ...
2
votes
1answer
434 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 ...
2
votes
2answers
676 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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2answers
164 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 ...
2
votes
1answer
167 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 ...
2
votes
1answer
79 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
votes
2answers
221 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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1answer
31 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
votes
1answer
200 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?
2
votes
1answer
114 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 ...
2
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0answers
75 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 ...
2
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1answer
33 views

Ratios to determine company's current purchasing power

what are the parameters which will affect a company ability to buy a new product based on its current financial situation. Is there any metrics or ratios which will tell the current company ...
2
votes
1answer
49 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, ...
1
vote
1answer
75 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?
1
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1answer
4k 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 ...
1
vote
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 ...
1
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2answers
45 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 ...
1
vote
2answers
969 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 ...
1
vote
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 ...
1
vote
1answer
58 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 ...
1
vote
1answer
52 views

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 = \...
1
vote
1answer
36 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 ...
1
vote
4answers
83 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?
1
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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.
1
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0answers
46 views

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 ...
1
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0answers
59 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
vote
1answer
63 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 ...
1
vote
0answers
65 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 ...
1
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0answers
51 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 ...
1
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0answers
40 views

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 ...
0
votes
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 ...
0
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3answers
123 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 ...
0
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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 ...
0
votes
1answer
52 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?...
0
votes
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{...
0
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1answer
23 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 ...