Finance – Fundamental Problems and Solutions

Online-Ressource (IX, 108 p. 10 illus., 2 illus. in color, digital)

Description based upon print version of record

Preface; Contents; 1 Finance and its Fundamental Problems; 1.1 Financial Theory and Business Practice; 1.2 Finance in Academic Knowledge Spectrum; 1.3 Fundamental Problems in Finance; 1.3.1 Financial Decision Criteria; 1.3.2 Fundamental Problems in Finance; 1.3.3 Fundamental Problems Remain Unsolved; 2 Does a Positive Perpetual Growth Rate Exist?; 2.1 Average Annual Growth Rate Revisit; 2.2 Arithmetic or Geometric Average Growth Rate; 2.3 ZZ Growth Paradox; 2.4 Bankruptcy Probability and Firm Life; 2.5 Is Bankruptcy Loss Incorporated into Discount Rate?; 2.6 The Implied Perpetual Growth Rate

2.7 The Stage of Finance as a ScienceReferences; 3 Valuation Based on Required Payback Period; 3.1 Absolute Valuation and Relative Valuation; 3.1.1 Absolute Valuation; 3.1.2 Relative Evaluation; 3.1.3 Option Pricing Valuation; 3.1.3.1 Types of Option; Call Options and Put Options; Formal Options and Real Options; American Options and European Options; In the Money and Out of the Money; 3.1.3.2 Option Pricing Model; Intrinsic Value and Time Value; Black-Scholes Model; 3.1.3.3 Option Pricing in Valuation Spectrum; 3.2 Cases When Current Absolute and Relative Valuation Invalid

3.3 A New Absolute Valuation Method Based on Required Payback Period3.3.1 ZZ Growth Model; 3.3.2 Solutions Based on ZZ Growth Model; 3.3.3 Comparison of Gordon Model and ZZ Growth Model; 3.4 The Theoretical Ratio Models; 3.4.1 ZZ PE Model; 3.4.2 ZZ PB Model; 3.4.3 ZZ PS Model; 3.5 Some of the Applications of ZZ Growth Model and ZZ Ratio Models; 3.5.1 Calculating the Fair-Priced Ratios; 3.5.2 Measuring the Market Bubble; 3.5.3 Predicting the Change of Stock Price; 3.6 Summary; References; 4 Certainty Equivalent, Risk Premium and Asset Pricing; 4.1 Alternatives to Determine a Discount Rate

4.1.1 The Industrial Average Rate of Return4.1.2 The Opportunity Cost of Capital; 4.1.3 The Weighted Average Cost of Capital; 4.1.4 The Capital Asset Pricing Model; 4.2 Certainty Equivalent and Risk Equivalent; 4.2.1 On Certainty Equivalent; 4.2.2 Risk Equivalent Model; 4.2.3 Certainty Equivalent Model; 4.2.4 Exemplifications; 4.2.4.1 NPV Calculation; 4.2.4.2 Risk Pricing; 4.3 Risk Premium and a New CAPM; 4.3.1 Modeling Risk Premium and a New CAPM; 4.3.2 Comparison Between Sharpe's CAPM and ZZ CAPM; 4.3.3 Exemplifications; 4.4 Summary; References

5 Tax Shield, Bankruptcy Cost and Optimal Capital Structure5.1 Firm's Goal and its Capital Structure; 5.2 The Potential Benefits and Costs of Debt Financing; 5.2.1 General Analyses; 5.2.2 MM Model I; 5.3 Efforts to Value Tax Shield and Bankruptcy Cost; 5.3.1 MM Model II; 5.3.2 The Trade-Off Model; 5.3.3 Other Efforts; 5.4 Decision-Oriented Valution of Tax Shield and Bankruptcy Cost; 5.4.1 The Time Horizon; 5.4.2 Value the Tax Shield; 5.4.3 Value the Bankruptcy Cost; 5.5 Decision-Oriented Optimal Capital Structure Model; 5.5.1 Derivation of the Model; 5.5.2 Basic Features of the Model

5.5.3 Basic Insights from the Model

10.1007/978-3-642-30512-2 [DOI]

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