refers to the volatility of returns (both positive and negative) that can be quantified through statistical measures such as probabilities, standard deviations and correlations between different returns. Its management is about decisions made to change the volatility of returns a corporation is exposed to, for example changing a company’s exposure to floating interest rates by swapping them to fixed rates for a fee. Since business is about generating higher returns by undertaking risky projects
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liabilities. This ratio is used to show a business’s short-term liquidity, while also allowing comparisons to be made of different sized businesses. 8.15 Quick ratio: quick assets/current liabilities. This ratio is used to show potential liquidity problems, as it demonstrates the businesses short-term debt paying ability. 8.16 Financial flexibility is the ability of a business to adapt to change. It is important because it enable a business to increase or reduce its operating activities as needed
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Chapter 9 Stocks and Their Valuation Answers to End-of-Chapter Questions 9-1 a. The average investor of a firm traded on the NYSE is not really interested in maintaining his or her proportionate share of ownership and control. If the investor wanted to increase his or her ownership, the investor could simply buy more stock on the open market. Consequently, most investors are not concerned with whether new shares are sold directly (at about market prices) or through rights offerings.
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the commercial strategy, find out the production plants. At the end of 2010 the business plan is ready and the company has already participated to an exhibition where many potential customers said to be very interested to the project. The problem: A private equity institution gets in touch with the company in order to buy 30% of the company buying new shares. The company wonders about the value of such shares, that is why the company asks a consultant to provide an estimation. The business idea: To
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MP A R Munich Personal RePEc Archive A critical analysis of Mudarabah & a new approach to equity financing in Islamic finance Salman Ahmed Shaikh International Association of Islamic Banks 1. July 2011 Online at http://mpra.ub.uni-muenchen.de/19697/ MPRA Paper No. 19697, posted 19. September 2011 12:50 UTC A Critical Analysis of Mudarabah & A New Approach to Equity Financing in Islamic Finance Journal of Islamic Banking & Finance, ISSN 1814-8042 By Salman Ahmed Shaikh Project Director
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finances its assets. There are two main types of capital: Equity and debt. Capital structure is usually a mix of debt, preferred stock, and common stock that the company can use for expansion and to remain financially healthy. The key is to choose the right mix in order to maximize shareholder return. A1. Capital Structure Capital structure is generally defined as how a company finances its assets. It is measured as a percentage of debt and equity (common and preferred stock). Potential investors tend
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of Facts: I do not completely agree with Joanna Cohen’s calculation of WACC. There are several problems in her calculation: • Instead of using market value of debt and equity to estimate the cost of capital, she used the book value. While the book value of debt is accepted as an estimate of market value, book value of equity should not be used when calculating cost of capital. • Another problem is the estimation of cost of debt. Cohen calculated it by taking total interest expense for the year
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Pioneer Petroleum Corporation One of the critical problems confronting management and the board of Pioneer Petroleum Corporation was the determination of a minimum acceptable rate of return on new capital investments, The company’s basic capital budgeting approach was to accept all proposed investments with a positive net present value when discounted at the appropriate cost of capital. At issue was how the appropriate discount rate would be determined. The company was weighing two alternative
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accurate as the forecasts it relies on. Errors in estimating the key ingredients of corporate value . . . can lead to mistakes in valuation. Tim Koller, Marc Goedhart, and David Wessels Valuation: Measuring and Managing the Value of Companies 1 A Return to First Principles mmauboussin@lmfunds.com Say you had to come up with a fair offer to buy your local dry cleaner and the seller limited the extent of your financial information to the answers to five questions. Which questions would you ask
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governance are (1) the rules that cover the board’s ability to fire the CEO and (2)the rules that cover the CEO’s ability to remove members of the board. a. True b. False Medium: (11.3) Return on invested capital and MVA Answer: b Diff: M 5 . If a company’s expected return on invested capital is less than its cost of equity, then the company must also have a negative market value added (MVA). a. True b. False Chapter 11: Valuation and Value-Based Management Page 1 (11.5) Corporate governance
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