The Equity risk-premium and volatility puzzles: Is it possible to have a high-equity premium and a low risk-free rate, and a high volatile stock return, have received a great deal of attention but beyond this, the fundamental issues are the following: What are the economic representations that...

This paper shows that the notion of rate of return is best understood through the lens of the average-internal-rate-of-return (AIRR) model, first introduced in Magni (2010a). It is an NPV-consistent approach based on a coherent definition of rate of return and on the notion of Chisini mean, it...

Modigliani and Miller (M&M) proposed that investors forgo dividends, leaving the money available for reinvestment as retained earnings. This recommendation takes two parts: Proposition III, i.e., a dividend has no impact on market value, and Proposition IV, i.e., that financial policy is of no...

Patents valuation methods are mostly income or income-market-based. In these methods one of the key estimate is the cost of capital. The paper analyses the question of the patents cost of capital from two complementary viewpoints: (i) theoretical aspects of estimating the cost of capital for...

This paper proposes a new discounted cash flows' valuation setup, and derives a general expression for the tax shields' discount rate. This setup applies to any debt policy and any cash flow pattern. It only requires the equality at any time between the assets side and the liabilities side of...

Firm lifecycle theory predicts that the Weighted Average Cost of Capital (WACC) will tend to fall over the lifecycle of the firm (Mueller, 2003, p. 80-81). However, given that previous research finds that corporate governance deteriorates as firms get older (Mueller and Yun, 1998; Saravia, 2014)...

Stocks with high idiosyncratic volatility perform poorly relative to low idiosyncratic volatility stocks. We offer a novel explanation of this anomaly based on real options, which is consistent with earlier findings on idiosyncratic volatility (the positive contemporaneous relation between...

If two investments have the same payoff covariance with the market but one has higher expected payoff, which asset according to the CAPM has most risk? One answer is that as far as risk goes the two assets are the same, because they have the same covariance with the market. The correct answer,...

In this paper I review the definition of weighted average cost of capital and derive the discount coefficient of the firm's cash flows which preserves linearity of the present value function within each discounting period, i.e. in each discounting period the sum of the present value of each cash...

The Equity risk-premium and volatility puzzle - is it possible to have a high equity premium and a low risk-free rate with a plausible risk aversion- have received a great deal of attention but beyond this question, the fundamental issues of that puzzle are the followings: what are the economic...