Essays on Financial Economics

Introduction

The financial crisis of 2007/9 was the worst in the U.S. since the Great Depression of the 1930s. It was the cause of the failure of some of the biggest financial institutions including Washington Mutual which was closed in 2008, and its assets transferred to JP Morgan. In 2008, the crisis reached its peak with loans dropping dramatically to the lowest levels to be witnessed in a half a century. For example, new loans to large borrowers fell by 47 percent in the fourth quarter of 2008 as compared to the previous quarter and by 79 percent relative to ...

IPOs

Abstract Large and small business move to expand their business by increasing funds through issuing shares. The reason to go public is that it opens up many financial doors as it raises cash. Therefore, companies trade in an open market to attract maximum investors.It can be explained in a way that if a company issued its stocks to the general public for the first time, the capital structure of the company changes that is it mainly begin to rely on debt for finance. TESCO Plc is one of those companies which in the list of world’s largest retailers. ...

Chapter 1: Introduction 3

Chapter 2: Financial Performance and Position of TESCO 6 Chapter 3 Financial Management Policy 14 Chapter 4 Investment Strategy 18 Chapter 5 Valuation of TESCO 22 Chapter 6 Conclusion 26 Abstract The present report provides critical analysis of financial positioning of Tesco Plc. For this, the financial data has been gathered for past five years as well as its competitors to critically assess financial positioning of Tesco in the retail industry. The reports highlight the recent issues of Bretix which has significantly impacted economic conditions of the United Kingdom leading to declining the consumer confidence because of triggering inflation. ...

The Determinants of Bank Performance in Kuwait

Abstract The aim of this paper is to determine the measures of banking sector profitability of Kuwait and then see the impact of internal and external determinants on the performance of the banking sector of Kuwait. Several variables are used to measure the performance of banking sector in this study, the impact microeconomic and macroeconomic determinants will be analyzed with relation to Return on Assets (ROA) and Return on Equity (ROE). However, answering the research questions will help in the selection of independent variables. It has been planned qualitative, and quantitative both research analysis techniques will be deployed for ...

Financial risk of an enterprise can be defined as the probability of adverse financial consequences in the form of loss of income and capital under uncertainty conditions for its financial activity. Financial risks have a great variety and for the implementation of effective management are classified by several main features that will be considered below. Financial risks arises in the process of enterprise relationships with financial institutions (banks, financial, investment, insurance companies, stock exchanges and others). Causes of the financial risk are inflation factors, the growth of bank interest rates, reduction of the value of securities and others.

Financial risks are roughly divided into two types:

1) ...

Introduction

Banking, financial, and even insurance-issuing institutions were badly hit by the global financial crisis that happened in 2007 to 2008. It created a serious domino effect that eventually took its toll on the U.S. Federal Government. The struggling dollar and U.S. economy—the world’s largest economy in terms of GDP, led to a serious wave of financial and stock market corrections that were felt globally, especially in countries whose economy is largely dependent on U.S. commodity and financial supply and consumption. The ultimate effect of the global financial crisis of 2009 was an increased uncertainty and negativity in the financial ...

Tools for Evaluating the Projects

Biz Systems Consultants Ltd is a firm that is set up by experienced persons. Now they are in consideration for the projects that have investment of 17, 00,000$ and three projects are mutually exclusive. In this report we will find out the ways and tools that can help the firm in accessing the feasibility of the project. There are different methods of accessing the feasibility of projects as well as many sources of finance but we will discuss here the three major sources of finance that are best suitable for the company (Bearse, 1993). For the company Biz ...

Project Title

Draft 1 (10/11/2014) Impact of Mergers and Acquisitions on Operating Performance: a Case Study of UK Literature Review There could be multiple reasons of M&A, but the main reasons of merger and acquisition could be acquiring the brands, market access and the knowledge of the market. M&A can cover The possible loss in the company's image or product services. Merger and acquisition is one of the reasons to cover the business financial losses. The increase of foreign companies in mergers and acquisition is that these companies have the ability and power to expand the deals. Mergers and ...

(Professor/Instructor) (Course/Major)

Introduction In the 21st century, two facts will pose significant threats to the global economy. One, the demand for energy across the globe will grow by at least 50 percent by 2030, and the use of non-renewable energy sources will continue to be the main source of energy, supplying 86 percent of global demand. Alberta, Canada is in a prime position to capture a major part of the global energy demand market. Located in the western part of Canada, Alberta is second only to Saudi Arabia in identified energy reserves among the global market players. Majority ...

According to Fabozzi & Koln (2006), the Capital Asset Pricing Model (CAPM) is the works of Sharpe (1964) and Litner (1965) that marks the beginning of assets pricing theory. Dempsey (2013) asserts that CAPM still dominates the practical world in measuring systematic risk. CAPM offers a rate of return to compensate investors for taking risks. This model helps to calculate investment risk and the return on investment. CAPM reaches new heights as a model of measuring returns on securities. CAPM estimates the cost of capital for projects as well as evaluate the performance of portfolios in the financial market. Jagannathan & Meier, (2002) ...

Abstract

This paper explores the various strategies that the managerial team can adopt under varying market situations especially with rising cost of inputs and changing demand and elasticity. The conflicts arising in taking strategic decisions regarding long term investment to expand the firm’s operation to expand market horizon and enhance market power, are discussed based on literature survey. The situations where the convergence of interests of stockholders and managers can take place have also been discussed referring to the evidences from several empirical studies conducted in the past. The issue of the relevance of government regulation has been delved ...

Impact of Future Derivatives on Stock Market Volatility

Derivatives has been the talk of the financial world after it was accused as the primary reason for such a deep financial crisis that affected the global economy in 2007. Thus, the modelling of asset returns and judging the volatility of stock market and whether the derivatives have a substantial effect on stock market volatility, is still the key task for every finance professional as it provides much needed on risk patterns involved in investment process. The Finance Gurus propose that stock market normally exhibit high levels of price volatility and cause concerns to the investor regarding unpredictable outcomes, however with ...

Question one

The major type of risk that Pasiminco faces are: - Interest rate risk- this risk is due to financial market conditions. Pasminco borrowings may be based on a fixed on floating rate of interest. It is obvious Pasminco has debt financing in its portfolio and if they are charged variable interest rates on their loans then there is a risk that the level of interest charged may be unfavorable if market interest rates are high. Pasiminco most probably failed to raise intermediate financing because their credit rating had fallen to warrant the difficulty in raising additional capital from lenders. In ...

Introduction

The current business environment has created a tough competition among companies each struggles to appear in top ten of the best-practice companies. The Financial Economics uses several factors in determining the suitability of an organization to be ranked among the best practice companies. On the other hand, the best-practice companies share some similarities, and also there are some differences in their operations. A company becomes recognized for its best practices based on the amount of revenues in the respective fiscal year. In addition, the classification is based on the market value that determines the company’s share price as a product ...

Executive Summary The current paper is devoted to studying of two financial valuation approaches and consists of two parts. The first part contains a description of Adjusted Present Value (APV) as valuation method and its advantages over other valuation methods. Computation of APV of the Top Plc Company was provided. The second part of the paper is devoted to the description of Black-Scholes Model, its practical application and limitations on the example of House4You Company.

Introduction

There are many valuation methods in financial analysis. The first part of the paper is devoted to the description, analysis and application of ...

1. Bevan Industries’ current cost of capital

Discussed hereunder is the step by step calculation of Bevan Industries’ current cost of capital (Barber, 2004).

Cost of Debt (Cd) Cd = I (1 - TR)

Where I is the Interest Rate on Debt

TR is the Tax Rate Cd = {(30,000,000 X 0.06) / 25,000,000} X (1 – 0.28)

= 0.072 X 0.72 = 0.05184

= 5.184%

Cost of Common Stock (Ccs)

Based on the given information, the cost of common stock is calculated using the formula Ccs = Cd + risk premium rf = (20 X 8) / 160 = 1 (rf is the risk free rate) Ccs = 5.184 + 0.75(1)

= 5.934%.

Cost of Preferred Stock (Cps)

...

Private placement is the sale of a company’s securities to a few, select investors as a means of raising the capital. The investors may include insurance companies, banks, pension funds, and mutual funds. Such a placement does not require registration with the Securities and Exchange Commission. This work appraises the market performance of a group of companies that announced their intention to sell private placement shares. The market considered herein is the NASDAQ Global Market. For this market, two companies (issuers) are considered -- NeurogesX, Inc. and Solar Capital Ltd. The information herein is current and is sourced from various sites including the ...

The Australian stock exchange has been established to economically assist the investors by bring to together in one market the investors who have the capital and the companies in need of capital in a highly liquid and well regulated market. In this case the companies are assisted to raise capital while the investors are given the chance to create and accumulate their wealth. Investors have a pool of more than 2000 listed companies to invest in. Amcor ltd, APA ltd, amp ltd, ASX ltd, Asciano ltd and Suncorp ltd are some of the companies listed in the ASX; each operates in ...

A share split is an action taken by corporate executives to increase the number of outstanding shares by dividing each share by a given split ratio that diminishes its price. In this case, the stock market capitalization does not change since the price per share reduces by the ratio of the share split. For instance, if a company splits its shares in the ratio of two shares for each one share held, the share holders will enjoy an increased numbers of shares nut at a reduced price thus the overall market capitalization remains unchanged.

Stock splits are not a new term in world ...