# Tag Info

Accepted

### Foundational equations or concepts of Finance

Considering this is an Economics Stack Exchange site, I’m going to answer in the spectre of Financial Economics. These are the most foundational equations and ideas of Financial Economics to ...
• 1,044
Accepted

### How can a company run out of cash when its stock prices is dropping?

It appears to me that it is the other way round: The RBS was running out of cash which is why the stock price was dropping. Stocks usually don't affect the immediate operation of a company, since ...
Accepted

### Why do companies sit on cash while they have debt?

Debt is cheap. Flexibility is valuable. They hold debt + cash up to the point where the value of flexibility is still greater than the net cost of servicing the debt minus any interest earnt on the ...
• 8,168
Accepted

### Why is having a big corporation keep its money in foreign countries a bad thing in the public's eye?

Firms can always shift their profits from one tax territory to another via various methods. Consider a simplistic example, let’s say we have firm ABC that has most of its business in Sweden. The ...
• 57k

### How does the Fama and French 3-factor model explain stock covariance?

There are two ways I could think of to answer this question. First, and I think this is what you are asking, "what is the covariance structure of two assets under the Fama-French 3-factor model?&...
• 16.3k
Accepted

### How to justify the treatment and control groups for Difference-In-Difference with staggered implementation of laws?

[W]hy do they need to write down "adopted a leniency law at some later point of time"? Because in Korea case, the word "our sample period" means "1995-2002" already. ...
Accepted

### Calculating Tobin's q from the financial statements of publicly listed companies

Tobin's q is defined as the ratio between the market value of the firm over the replacement cost of its assets. If you use WRDS, you can calculate it as follows: Tobin's q = (AT + (CSHO ∗ PRCC_F) − ...
• 16.3k
Accepted

### Connection assets under management and net worth

Fidelity Investments is a corporation which manages investments on behalf of clients. It does not own "its" assets under management. Those assets belong to its clients. In order to manage ...
• 8,529
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 ...
• 2,365

### How can a company run out of cash when its stock prices is dropping?

From the answer to the question How does stock market drop affect the economy if it doesn't affect the corporations? I learned that "companies still routinely issue new stocks when they are in ...
Accepted

### Adding a non-binding constraint to the objective function

To illustrate what Tirole has done, let's consider a simpler environment. Consider a utility maximisation problem over two goods, $x$ and $y$. The consumer has utility function $u(x,y) = f(x) + y$, ...
Accepted

### How are shell companies used for tax evasion?

Another key feature of those shell companies is that they hide the ultimate beneficiary of the transactions. Banks, insurance companies and most financial services firm must make enquiries as part of ...
• 1,077
Accepted

### Corporate Finance Book Recommendations

frequent Corporate Finance textbooks are MBA level - Berk and de Marzo (2017) - Corporate Finance, 4th ed. (Stanford) Advanced undergrad and corp theory-specific - Grinblatt and Titman - ...
• 336

• 12.4k

• 29.3k
Accepted

### Does doing nothing produce negative net present value? How can we show that?

NPV just looks at actual cashflows so NPV of doing nothing is 0. What you are thinking about is the concept of opportunity cost from economics. Every action/inaction has a cost that you need to forgo ...
• 57k
1 vote
Accepted

### Interpeting equivalent annual cash flows

You're missing the distinction between costs and benefits. In your first probem you have positive NPVs and therefore the equivalent annual value is the equivalent annual cashflows that comes in. In ...
• 2,373

Only top scored, non community-wiki answers of a minimum length are eligible