Identifying the Marginal Investor





The marginal investor in a firm is the investor who is most likely to be trading at the margin and therefore has the most influence on the pricing of its equity. In some cases, this may be a large institutional investor, but institutional investors themselves can differ in several ways. The institution may be a taxable mutual fund or a taxexempt pension fund, may be domestically or internationally diversified, and vary on investment philosophy. In some cases, the marginal investors may be...
 A
 Different System for Disciplining Management Corporate Governance
 Equity
 Real World Focus
 Resource Guide
 The Capital Asset Pricing Model
 Aa  2
 Aaa
 Accounting Principles Underlying Asset Measurement
 Accounting Principles Underlying Liability and Equity Measurement
 Accounting Principles Underlying Measurement of Earnings and Profitability
 Actual and Synthetic Ratings
 Apply Apply
 Assessing Accounting Return Approaches
 Asset Measurement and Valuation
 The Arbitrage Pricing Model
 Bank Debt
 Bb  2
 Bbb
 Bond Ratings and Interest Rates
 Bonds
 Building in Capital Rationing Constraints into Analysis
 C
 Hybrid Securities
 Imj
 Lmq
 Time Weighted versus Nominal Cash Flows
 Udy
 Calculating the Cost of Other Hybrid Securities
 Calculating the Weights of Debt and Equity Components
 Can financing weights change over time
 Can laws make companies good citizens
 Capital Rationing
 Capital Structure Overview Of The Financing Decision
 Cash Flow Based Decision Rules Payback
 Cash Flows on Options
 Cd
 Cdtt
 Cf  2 3
 Changing Discount Rates and NPV
 Choosing an alternative objective
 Choosing between Dividends and Equity Repurchases
 Choosing the Right Financing Instruments
 Choosing the Right Objective
 Choosing the Right Valuation Model
 Comparing Net Present Values
 Comparing NPV and IRR
 Conclusion  2 3 4 5 6 7 8
 Conclusions
 Constrained Cost of Capital Approaches
 Contingent Value Rights
 Corporate Bond Markets and the use of debt
 Corporate Strategy and Project Quality
 Correlations and Covariances
 Cost of Capital Approach
 Cost of Debt for Projects
 Cost of Delay and Early Exercise
 Cost of Equity for Projects
 Costs of Debt and Equity
 Current Assets
 Current Liabilities
 D
 Dcn
 Pmb
 Xwe
 Ykp
 Data Distributions
 Debt as a Discplining Mechanism
 Debt creates agency costs
 Debt may make managers more disciplined
 Default Risk and Interest rates
 Differences between Incremental and Total Cashflows
 Different Depreciation Methods for Tax Purposes and for Reporting
 Discounted Cash Flow Valuation
 Dividends reduce managerial discretionpower
 Do you live in a meanvariance world
 Ebit  2 3
 Ebitda
 Efficient Risk Taking
 Eps  2
 Equity Debt and Cost of Capital for Banks
 Equity Debt and Net Present Value
 Equity Risk and Expected Returns
 Equity Valuation versus Firm Valuation
 Estimating and using the cost of capital
 Estimating Regression Parameters
 Exclusive Rights and the Option Feature
 Expected Return Returns  2
 Fcfe
 Financing Choices and a Firms Life Cycle
 Financing Mix and Cost of Capital for Projects
 Firm Valuation and Leverage
 Firm Value and Overpayment on Acquisitions
 Firms and Financial Markets
 From Accounting Earnings to Cashflows
 From Cost of Equity to Cost of Capital
 From Simple to Multiple Regressions
 G
 General Subscriptions
 Getting Information about Current Financing Choices
 Getting Information about optimal capital structure
 Getting Information for valuation
 Getting Information on Competitive Strengths and Excess Returns
 Getting Information on mechanics of capital structure
 Getting Information on Risk and Return
 Growing Annuities
 H
 Historical Average and Projected Returns on Capital
 How Firms Choose their Capital Structures
 I
 1
 Evk
 Measuring Risk
 Nmw
 Return on Assets ROA Return on Capital ROC
 Snp
 Compounding a Cash Flow
 Return on Equity
 Measuring Market Risk
 Size Revenue Objectives
 Profit Maximization Objectives
 Tax Implications
 Implications  2
 Implications of the Expansion Option
 In Practice A Financing Checklist for Classifying Securities
 In Practice A Simple Approach to Decomposing Debt and Equity
 In Practice Adjusted Present Value APV
 In Practice Are strategic considerations really options
 In Practice Can you add value while doing good
 In Practice Customized Bonds
 In Practice Dealing with Accounting Returns
 In Practice Economic Value Added EVA
 In Practice Equity Repurchase and the Dilution Illusion
 In Practice Estimating Expected Revenues and Cash flows
 In Practice Estimating only downside risk
 In Practice Exchange Rate Risk Political Risk and Foreign Projects
 In Practice How do you buy back stock
 In Practice Investment Grade and Junk Bonds
 In Practice Is there a payoff to better corporate governance
 In Practice Leasing versus Borrowing
 In Practice Managing Earnings
 In Practice Normalizing Operating Income
 In Practice Optimal Debt Ratios for Private Firms
 In Practice Proxy Fights
 In Practice Ratings Changes and Interest Rates
 In Practice Reconciling your value with the market price
 In Practice Risk Cost of Equity and Private Firms
 In Practice Security Innovation and Changing Capital Structure
 In Practice Stakeholder Wealth Maximization and Balanced Scorecards
 In Practice The Underpricing of IPOs
 In Practice The Value of Control
 In Practice The Value of Synergy Disneys Animated Movies
 In Practice Using A Higher Hurdle Rate
 In Practice Valuing Financial Flexibility as an option
 In Practice What Is A Stable Growth Rate
 In Practice Who should diversify The Firm or Investors
 In Practice Who Will Pay The Sunk Costs
 In Summary
 Individuals
 Info  2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138
 Institutional Investors
 Intangible Assets
 Internal Rate of Return
 Investing in Other Business Lines
 Investments Financial and Marketable Securities
 Irr2088  2
 Is this debt or is it equity
 Estimating the Cost of Equity
 L
 L 1 rn 1J
 Leases
 Liabilities
 Live Case Study
 Live Case Study Analyzing A Firms Current Financing Choices
 Live Case Study Analyzing A Firms Existing Investments
 Live Case Study I Corporate Governance Analysis
 Live Case Study Mechanics of Moving to the Optimal
 Live Case Study Valuation
 Market Fundamental and Accounting Betas Which one do we use
 Matching Liabilities to Assets
 Measures of Profitability
 Measuring Accounting Earnings and Profitability
 Measuring Asset Value
 Measuring Earnings and Profitability
 Measuring Return On Investments
 Measuring Returns The Choices
 Multiple Businesses with Different Risk Profiles Project Risk similar within each Business
 Multiple Stakeholders and Conflicts of Interest
 Mutually Exclusive Projects
 Mutually exclusive projects with different risk levels  2
 No change gradual change or immediate change
 No Optimal Capital Structure
 Obtaining The Inputs For Option Valuation
 Opportunity Costs
 Opportunity Costs of Resources with no Current Alternative
 Option Pricing
 Optionlinked Bonds
 Options Embedded in Projects
 Practical Considerations  2
 Prerequlslt Comp Leiiientiiry Independent Mutually Exclusive
 Private Firm Expansion Raising Funds from Private Equity
 Private Placements
 Product Cannibalization
 Product Cannibalization at Disney
 Profitability Index
 Project A
 Project Interactions Side Costs And Side Benefits
 Project Synergy
 Projects with Different Lives
 Projects with Different Risk Profiles
 Projects with Equal Lives
 Quality of Management and Project Quality
 Questions
 Questions and Exercises
 Rationality and Stock Price Effects
 Reasons for Capital Rationing Constraints
 Reasons for Stock Buybacks
 Reconciling Different Valuations
 Refinements on the Operating Income Approach
 Regression Assumptions and Constraints
 Resource with a current alternative use
 Return on Capital
 Returns on Capital and Equity for Entire Firms
 Rights Offerings
 Risk is in the eyes of the beholder
 Risk Measurement And Hurdle Rates
 Roc
 S
 Shelf Registrations
 Side Costs from Projects
 Simple Cash Flows
 Single Business Project Risk similar within business
 Special Features and Interest Rates
 Standardized Values and Multiples
 Staying Private versus Going Public
 Step 1 Measuring Cash Available to be returned to Stockholders
 Steps in an initial public offering
 Steps in the Adjusted Present Value approach
 Stock Buybacks Return on Capital and EVA
 Stockholder Interests Managerial Interests and Management Buyouts
 Stockholders and Managers
 Summary
 Summary Statistics
 Sunk Costs and Opportunity Costs
 Synergy in Acquisitions
 T11 WACCt where
 Tests for Expansion Option to have Value
 The Annual Meeting
 The Argument for Incremental Cash Flows
 The Basics Of Risk
 The Birdinthe Hand Fallacy
 The Board of Directors
 The Case for an Optimal Capital Structure
 The Case for Cash Flows
 The Case for Timeweighted Returns
 The Choices for a Publicly Traded Firm
 The Choices Types of Financing
 The Classical Objective
 The Components of Risk
 The Consequences of Debt Irrelevance
 The Consequences of Stockholder Powerlessness
 The Consequences of Stockholder Bondholder Conflicts
 The Contribution of the Miller Modigliani Theorem
 The Cost of Debt
 The Costs of Debt
 The Costs of Going Public
 The Determinants of Default Risk
 The Dividend Payment Time Line
 The Dividends Are Bad School
 The Effects of Debt Financing on Cashflows to Equity
 The Effects of Diversification on Venture Capitalist
 The Effects of Working Capital
 The Firm and Society
 The Firm Structural Set up
 The Foundations
 The Intuitive Basis for Present Value
 The Irrelevance of Debt in a Taxfree World
 The Objective In Decision Making
 The Optimal Financing
 The Option to Abandon a Project
 The Option to Delay a Project
 The Payoffs to the Option to Expand
 The Process of Raising Capital
 The Replacement Decision A Special Case of Mutually Exclusive Projects
 The Risk in Borrowing Default Risk and the Cost of Debt
 The Role of Acquisitions
 The Significance of a positive Net Present Value
 The Source of the Conflict  2
 The Tradeoff in a Balance Sheet Format
 Timing of Tax Payments
 Ttw
 Tv
 U g
 Underlying Assumptions in Comparable Valuation
 Upside and Downside Risk
 Us
 Using Regressions
 Using the firms hurdle rate for individual projects
 Using up excess debt capacity reduces financial flexibility
 V  2
 Implications for Agency Costs
 Valuation Principles And Practice
 Value Enhancement
 Valuing an Initial Public Offering
 Venture Capital and Private Equity
 Wacc And Firm Value As A Function Of Leverage
 Warrants
 What are research and development expenses
 What do you think the objective of the firm should be
 What is a project
 Why are accounting earnings different from cashflows
 Why cash flows across time are not comparable
 Why Firms may pay out less than is available
 X
 Vx Y VY
 Y
 Yx