Corporate Finance – Course Note – Milan van Dijk
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The Corporation:Public traded company> US frameworks> dominate the worldLimited liability with double taxation> corporate tax and personal taxAustralia has no double tax“C” normal, Apple, Tesla, large firms with double taxation“S” not public traded, not more than 100 shareholders in US> taxed only at shareholder level. Not subject to corporate taxes.Corporations> financially sophisticated Sole proprietorship> hairdresserLooking in numbers corporations low %Corporations high in % of revenue Total effective tax rate > total tax / earnings Cultural attitude is strongPay to shareholders or make jobs a bit safer?Japan: all stakeholders> shareholders, investers (banks), employees, customers, society, government, etc. > Job securityUS: shareholders> no one else matters> pay dividends to shareholdersNL: hard to tell. Separation between ownership and control.Sole: togetherCorporation: always separate. CEO spends money of everyoneBoard of director is legally in charge> appoints CEO. Real idea< CEO appoints the board and has the power. CFO> corporates, banks, commercial, accounting CEO> management experience, marketing, technology. Less formal training. Less educated. Job of CEO is to select the right investment projects.Conflict with CEO and shareholders> they want something elseAgency costs>Compensation plansBoard of directors > monitor and supervise CEOTakeovers> kick out managersSpecialist monitoring > activistsAuditors They work well but not always> Enron most admired employer but fraudStatistics:Financial markets> large amount of dataDifferent impressions Return> holding period return Variance: dispersion Mean minus real return is demeaned returnDegree of freedom: we are estimating with a sample> when we divide N-1 because we lost degree of freedom, because we are estimating the mean, so theres a bias as we didn’t observe the mean. Excel function: Var.P (population N) and Var.S (sample, used N-1)N number of observations Covariance: measure relatedness> how they move together. Joint distribution. Very positive correlated Accounting:Main source for finance. Market data and accounting data. Accounting data needs to make sense. Balance sheet: cash:Bad news: credit salesGood news: dividends, investedInterest expenses subtracted before taxes. Interest expenses are tax deductible Pepsi lower tax than 30%> transfer pricing, licensing Law of one price: same price for same riskFair market value> discount same interest rateArbitrage is transaction in two different market with a riskless profitSell expensive, buy cheap Compounding: shorter periods> increased compounding frequencies, higher amounts.Stock and bond:Annuity and perpetuitiesGrowing perpetuity: always grows, not updated Forecasts of growth is hard to doG gets close to cost of capital Growth annuity: fixed number of periodsOne long perpetuity and one shortShort: cancel first out> power 3 for period 4 (first to cancel out). Additional discounting because it starts in period 4Annuity: long A – short B  R2> economically> amount of variation is explained, rest is idiosyncratic risk.Value stock: dividend discount modelGordon growth model: price stock today> discount all future dividends.Forecast cost of capital and forecast dividend (sticky over time)
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By: Milan van Dijk
Submitted: September 13, 2017
Essay Length: 3,213 Words / 13 Pages
Paper type: Course Note Views: 326
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