...patent for Dr. Aplin’s unique ethanol production process he decided to broaden the scope of operations of the company but he doesn’t have additional funds to put in. So, he developed a business plan to seek for financing. AFC will need $55 million in total. Assume you are a commercial loan officer with a large regional bank: We would consider the type of business and financial statues of AFC, history of past banking involvement in deciding what types of financing to provide to a company as the bank definitely don’t want the loan to default. In the case of AFC, it is still in a very early stage of the formation of the business so we can’t really tell the revenue of it and it is impossible to be breakeven in a few years. We don’t have much banking history to refer to as AFC is just five years old. The company is still developing. The chance of it going bankruptcy would be relatively high. First of all, long-term loans will not be considered. The bank will only offer long-term loan to established businesses with some years of financial success and AFC is a new company and they won’t have many historical financial statement to secure the long-term loan. Meanwhile the company needs a start-up capital so we would consider offer short-term loans to AFC. On the bank’s behave the interest rates in a short-term...
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...comrlocatereconbase Firms, do you know your currency risk exposure? Survey results Claudio Loderer ) , Karl Pichler a a Institut fur Finanzmanagement, UniÕersitat Bern, Engehaldenstrasse 4, Bern 3012, Switzerland ¨ ¨ Abstract This paper surveys the currency risk management practices of Swiss industrial corporations. We find that industrials are unable to quantify their currency risk exposure and investigate possible reasons. One possibility is that firms do not think that they need to know because they use on-balance-sheet instruments to protect themselves before and after currency rates reach troublesome levels. This is puzzling because performing a rough estimate of at least the exposure of cash flows is not prohibitive and could be valuable. Another puzzling finding is that firms use currency derivatives to hedgerinsure individual short-term transactions, without apparently trying to estimate aggregate transaction exposure. q 2000 Elsevier Science B.V. All rights reserved. JEL classification: G15; G30 Keywords: Currency risk exposure; Swiss industrial corporation; On-balance-sheet instruments 1. Introduction This paper surveys the currency risk management practices of Swiss industrial corporations. Many of them sell most of their output abroad and would therefore seem to be heavily exposed to currency risk. In fact, currency risk can be substantial. Between 1978 and 1996, the Swiss franc experienced dramatic swings in relation to major currencies such as the U.S. dollar, the...
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...FROM THE AUTHOR OF STANSBERRY'S INVESTMENT ADVISORY PORTER STANSBERRY THE SURVIVAL BLUEPRINT Published by Stansberry Research Edited by Steven Longenecker and Fawn Gwynallen Copyright 2014 by Stansberry Research. All rights reserved. No part of this book may be reproduced, scanned, or distributed in any printed or electronic form without permission. About Stansberry Research Founded in 1999 and based out of Baltimore, Maryland, Stansberry Research is the largest independent source of financial insight in the world. It delivers unbiased investment advice to self-directed investors seeking an edge in a wide variety of sectors and market conditions. Stansberry Research has nearly two dozen analysts and researchers – including former hedge-fund managers and buy-side financial experts. They produce a steady stream of timely research on value investing, income generation, resources, biotech, financials, short-selling, macroeconomic analysis, options trading, and more. The company’s unrelenting and uncompromised insight has made it one of the most respected and sought-after research organizations in the financial sector. It has nearly one million readers and more than 500,000 paid subscribers in over 100 countries. About the Author Porter Stansberry founded Stansberry Research in 1999 with the firm’s flagship newsletter, Stansberry’s Investment Advisory. He is also the host of Stansberry Radio, a weekly podcast that is one of the most popular online...
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...response to the crisis that was ongoing at that time. It is good to note that getting 15 scholars to agree on 37 recommendations is something worth of appraisal. However, one cannot but point that the report is somehow disjoint in its arrangement of chapters. I articulate that this slight disorder is because of the limitations of making 15 experts agree. This disjoint attribute has not prevented the report from being very constructive and direct in addressing very important policies and sensible issues relevant to reform. The paper has two central principles that the recommendation have been built on. The first is that policymakers have to consider how new regulations will affect not only individual firms, but also the financial setup as a whole. The second principal states that firms should be responsible for the costs of their failure and excessively risky positions. This principal aims at protecting taxpayers, the innocent bystanders, from the wrong doings of irresponsible corporate planning on the behalf of greedy market participants. These two principles can be considered the core of what is really the Squam Lake Group’s philosophy. Yet the report has its shortcomings. The...
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...4 Use of Financial Statements for Valuation “I am considering to buy a small packing company. They offered me RMB 15 million and gave me their last 2 years’ Income Statements and Balance Sheets. I think it’s overpriced. How much do you think I should pay?” How will you use I/S and B/S to assess the target firm’s fair value? 5 Warren Buffet Emphasized importance of looking at a firm’s Competitive advantage of products Long-term growth potential… for good investment 6 Sound Fundamental Analysis One does not buy a stock, one buys a business. When buying a business, know the business. Good firms can be bad buys (if overpriced). Price is what you pay, value is what you get. Value of firm = Value of Debt + Value of Equity TA = L + SE (BV) on B/S 7 TA – L = SE SE (BV) vs. Market value of equity 8 Stock Price What is intrinsic value? Is the price overvalued? P/E=41: What earnings growth rate investors predicted? 9 Learning Objective of the Course I. Valuation based on Financial Statements Predict firm value and challenge the market! II. Financial Statement Analysis Assess a firm’s future performance & analyze how a firm creates value Creative, forward-looking & value-focused analysis! 10 Features of PART I: Valuation How do we calculate intrinsic value (really...
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...DOWN 'Basel I' The first accord was the Basel I. It was issued in 1988 and focused mainly on credit risk by creating a bank asset classification system. This classification system grouped a bank's assets into five risk categories: 0% - cash, central bank and government debt and any OECD government debt 0%, 10%, 20% or 50% - public sector debt 20% - development bank debt, OECD bank debt, OECD securities firm debt, non-OECD bank debt (under one year maturity) and non-OECD public sector debt, cash in collection 50% - residential mortgages 100% - private sector debt, non-OECD bank debt (maturity over a year), real estate, plant and equipment, capital instruments issued at other banks The bank must maintain capital (Tier 1 and Tier 2) equal to at least 8% of its risk-weighted assets. For example, if a bank has risk-weighted assets of $100 million, it is required to maintain capital of at least $8 million. Basel II, initially published in June 2004, was intended to amend international standards that controlled how much capital banks need to hold to guard against the financial and operational risks banks face. These rules sought to ensure that the greater the risk to which a bank is exposed, the greater the amount of capital the bank needs to hold to safeguard...
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...Ch. 14. An overview of Corporate Finance. 14.1 Cash for investments is generated mostly (USA: 80%) internally as depreciation and retained earnings. Still, companies have a gap between cash they need and cash they generate internally. This gap is financial deficit. So companies have to either sell new equity or borrow.This causes two different kinds of problems: 1) The plow back ratio? => Dividend policy 2) The proportions of debt and issue of equity? => Debt policy. • Net stock issue is negative = Company repurchases more stocks than issues them. Reasons for internally generated funds: a) avoid cost of issuing securities b) investors don’t get the message from lower future profits and higher risk. Recent years firms have issued more debt than equity. Still, there are many ways to calculate the Debt ratio of company: 1) Debt / total assets = ( Short + long term debt ) / Total assets, or 2) Proportion of debt in long term financing) = Long term liabilities Long term liabilities + stockholders’ equity The Debt Ratios has risen since 1950 because of the book value of the corporate assets falls as behind the actual value of those assets. This is caused the inflation. And the new tools for risk management have...
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... was interviewed about Enron by Atsushi Nakayama, a reporter for the Japanese newspaper Nikkei. Their Q & A appears below: Nakayama: What do you think are the most important lessons to be learned from the Enron scandal? Hanson: The Enron scandal is the most significant corporate collapse in the United States since the failure of many savings and loan banks during the 1980s. This scandal demonstrates the need for significant reforms in accounting and corporate governance in the United States, as well as for a close look at the ethical quality of the culture of business generally and of business corporations in the United States. N: Why did this happen? H: There are many causes of the Enron collapse. Among them are the conflict of interest between the two roles played by Arthur Andersen, as auditor but also as consultant to Enron; the lack of attention shown by members of the Enron board of directors to the off-books financial entities with which Enron did business; and the lack of truthfulness by management about the health of the company and its business operations. In some ways, the culture of Enron was the primary cause of the collapse. The senior executives believed Enron had to be the best at everything it did and that they had to protect their reputations and their compensation as the most successful executives in the U.S. When some of their business and trading ventures began to perform poorly, they tried to cover up their own failures. N: Why didn't the company's...
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...that you invest. Thus, if rep is the ex post real rate of return and ex post real interest rate, we have 1 + r ep ⎛ 1+i ⎞ ⎜ P(t+1) ⎟ ⎠ = (1 + i ) = ⎝ ⎛ 1 ⎞ ⎛ P(t+1) ⎞ ⎜ P(t) ⎟ ⎜ P(t) ⎟ ⎝ ⎠ ⎝ ⎠ Notice that the real rate of interest depends on the realization of the rate of inflation because P(t + 1)/P(t) = 1 + π(t + 1), where π(t + 1) is the rate of inflation between time t and t + 1. For simplicity, we drop the time notation and simply write 1 + r ep = If we subtract 1 from each side, we have (1 + i) (1 + π) r ep = which is often approximated as (1 + i) (1 + π) i-π = (1 + π) (1 + π) (1 + π) rep = i – π The approximation involves ignoring the term (1 + π) in the denominator, which is close to 1 if inflation is not too high. Thus, the ex post real interest rate equals the nominal interest rate minus the actual rate of inflation. Because the inflation rate is uncertain at the time an investment is made, the lender cannot know with certainty the real rate of return on the loan. By taking the expected value of both sides of the equation, conditional on the...
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...absolutely convinced that they were running the most efficient, most productive, well-organized, well-oiled machine in the industry. • The room for increasing the operational efficiency. Value creation through cost savings. • Potential improvement of the capital structure. Lower cost of capital through extensive securitization. • Hertz was undervalued. • Unique strong brand • On airport market leadership • Good historical performance Operational Efficiency Improvements • U.S. RAC on airport operating expenses CD&R estimated that labor per transaction, administrative, and other costs had increased 41 %, 65 % and 30 %. • U.S. RAC off-airport strategy CD&R proposed to slow expansion, focus selectively on profitable growth, and close locations that failed to achieve positive contribution. • European operating SG&A expenses Hertz’ operational SG&A expenses as a percentage of revenue were nearly three times higher than those in the U.S. • U.S. RAC fleet costs Despite its scale advantages, Hertz historically had higher fleet costs than those of key competitors....
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...According to the “outcome” model, dividends are the result of effective pressure by minority shareholders to force corporate insiders to disgorge cash. According to the “substitute” model, insiders interested in issuing equity in the future choose to pay dividends to establish a reputation for decent treatment of minority shareholders. The first model predicts that stronger minority shareholder rights should be associated with higher dividend payouts; the second model predicts the opposite. Tests on a cross-section of 4,000 companies from 33 countries with different levels of minority shareholder rights support the outcome agency model of dividends. The authors are from Harvard University, Harvard University, Harvard University and University of Chicago, respectively. They are grateful to Alexander Aganin for excellent research assistance, and to Lucian Bebchuk, Mihir Desai, Edward Glaeser, Denis Gromb, Oliver Hart, James Hines, Kose John, James Poterba, Roberta Romano, Raghu Rajan, Lemma Senbet, René Stulz, Daniel Wolfenzohn, Luigi Zingales, and two anonymous referees for helpful comments. 2 The so-called dividend puzzle (Black 1976) has preoccupied the attention of financial economists at least since Modigliani and Miller’s (1958, 1961) seminal work. This work established that, in a frictionless world, when the investment policy of a firm is held constant, its dividend payout policy has no consequences for shareholder wealth. Higher dividend payouts lead to lower retained earnings...
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...According to the “outcome” model, dividends are the result of effective pressure by minority shareholders to force corporate insiders to disgorge cash. According to the “substitute” model, insiders interested in issuing equity in the future choose to pay dividends to establish a reputation for decent treatment of minority shareholders. The first model predicts that stronger minority shareholder rights should be associated with higher dividend payouts; the second model predicts the opposite. Tests on a cross-section of 4,000 companies from 33 countries with different levels of minority shareholder rights support the outcome agency model of dividends. The authors are from Harvard University, Harvard University, Harvard University and University of Chicago, respectively. They are grateful to Alexander Aganin for excellent research assistance, and to Lucian Bebchuk, Mihir Desai, Edward Glaeser, Denis Gromb, Oliver Hart, James Hines, Kose John, James Poterba, Roberta Romano, Raghu Rajan, Lemma Senbet, René Stulz, Daniel Wolfenzohn, Luigi Zingales, and two anonymous referees for helpful comments. 2 The so-called dividend puzzle (Black 1976) has preoccupied the attention of financial economists at least since Modigliani and Miller’s (1958, 1961) seminal work. This work established that, in a frictionless world, when the investment policy of a firm is held constant, its dividend payout policy has no consequences for shareholder wealth. Higher dividend payouts lead to lower retained earnings...
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...positive relationship between a reduction in working capital and stockholder wealth. However, is it possible for a firm to operate without any investment in working capital? It depends, probably not. Some investment in working capital acts as a shock absorber and reduces the firm’s risk and the cost of capital. 2. Describe the three motives for holding cash. Managers have a transactions motive to hold cash when expenses are unsynchronized with cash inflows. In this case cash provides a medium to fulfill payments in lieu of liquidating long-term assets. Thus, cash can reduce transaction costs and opportunity costs that stem from lost returns due to early liquidation. The transactions motive for holding cash is important for firms with unsynchronized cash inflows and outflows. Managers may hold cash for precautionary purposes because cash can buffer against unexpected contingencies or cash flow shortages; realized cash inflows may be less than expected. Precautionary cash holdings provide funding for purchases and repayment of debt, which are even more critical during tight credit periods when external capital is more difficult to acquire. Managers also have a speculative motive because cash holdings allow for the acquisition of positive net present value investments, where examples include strategic mergers or acquisitions. In these specific instances cash allows the buyer to move quickly, thereby avoiding a potential bidding war. 3. What are the five C’s of credit...
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...more concise. Note that the definitions make several points: * A main objective of marketing is to create customer value. * Marketing usually involves an exchange between buyers and sellers or between other parties. * Marketing has an impact on the firm, its suppliers, its customers, and others affected by the firm’s choices. * Marketing frequently involves enduring relationships between buyers, sellers, and other parties. * Processes involved include “creating, communicating, delivering, and exchanging offerings.” Delivering customer value. The central idea behind marketing is the idea that a firm or other entity will create something of value to one or more customers who, in turn, are willing to pay enough (or contribute other forms of value) to make the venture worthwhile considering opportunity costs. Value can be created in a number of different ways. Some firms manufacture basic products (e.g., bricks) but provide relatively little value above that. Other firms make products whose tangible value is supplemented by services (e.g., a computer manufacturer provides a computer loaded with software and provides a warranty, technical support, and software updates). It is not necessary for a firm to physically handle a product to add value—e.g., online airline reservation systems add value by (1) compiling information about available...
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...[pic] |[pic] |[pic] |[pic] |[pic] |[pic] | INTRODUCTION TO MARKETING [pic] [pic] | | |[pic] | |[pic] | |[pic] | |[pic] | |[pic] | |[pic] | |[pic] | |[pic] | |[pic] | |[pic] | |[pic] | |[pic] | |[pic] | | | |[pic] |[pic] | Lars Perner, Ph.D. Assistant Professor of Clinical Marketing Department of Marketing Marshall School of Business University of Southern California Los Angeles, CA 90089-0443, USA (213) 740-7127 INTRODUCTION TO MARKETING Background Marketing. Several definitions have been proposed for the term marketing. Each tends to emphasize different issues. Memorizing a definition is unlikely to be useful; ultimately, it makes more sense to thinking...
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