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4 votes
Accepted

Modigliani & Miller with taxes: how is this equation derived?

Note that with taxes, the value of the company is { the value of the company as if it had no debt } + { the value of the tax shield }: $$ V_L=V_U+T_C D; $$ here, $V_L$ is the value of a levered ...
Richard Hardy's user avatar
3 votes

Companies mutually owning each other

You can have both cases: X=Y=100 and X=Y=0 in your accounting. Both companies show the shares of the other company in their books. If you check the balance sheet of A and B respectively, you will find ...
T123's user avatar
  • 303
3 votes

How are assets distributed by types of organisations?

The Flow of Funds (Financial Accounts of the United States) should have what you need. For example, table B.1 Net National Wealth Table Description Table (Billions of dollars; amounts outstanding ...
BKay's user avatar
  • 16.3k
3 votes

Does good geographical location count as land in economics?

In Economics "Land" as a form of capital is those parts of the natural environment that had become a subject of economic transactions (market or otherwise). Consider a piece of land that is public ...
Alecos Papadopoulos's user avatar
2 votes
Accepted

Why does Dodd-Frank/Basel make large cash piles unattractive?

The regulation that you are referring to is part of Basel III's Capital requirements. I believe the most relevant regulation is the Supplementary Leverage Ratio. In short, the SLR is a ratio of core ...
jmbejara's user avatar
  • 9,355
2 votes

Solving a problem using CAPM and capital structure theory

@chsk gives the correct answer if the firm has to raise funds using the equity market and the cost of those funds is the same as that for the firm. However, I would recommend that this firm do the ...
BKay's user avatar
  • 16.3k
2 votes

Understanding Modigliani & Miller: different graphs in different textbooks

The indicators measured on the horizontal axes are different, $D/(D+E)$ vs $D/E$. Taking this into consideration we get consistent functional forms for $R_E$, but not for $R_D$. Let $D/(D+E) = x$. ...
Giskard's user avatar
  • 29.3k
1 vote

Companies mutually owning each other

I do not think X=Y=100 is logically wrong. Shares are traded on their perceived value. If the sellers' perceived value is low A and B can simultaneously buy all the shares in the other. A would ...
H2ONaCl's user avatar
  • 941
1 vote

Solving a problem using CAPM and capital structure theory

Assuming that the project has the same beta as the firm's existing assets -- and assuming I'm remembering what I learned in my introductory CorpFin class correctly --, you are indeed right. The ...
chsk's user avatar
  • 293

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