Session 13: Uncertainty in Investing and Equity-focused Analysis
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- Опубліковано 18 вер 2024
- In this Zoom session, we started by looking at how to deal with uncertainty, and cautioned against two practices:
1. Doing what if analysis as a defensive mechanism to cover your rear-end, rather than as the basis for better investment decisions and management.
2. Double counting risk, by rejecting positive NPV projects because the what if or simulation gives you negative NPVs some of the time.
In the context of what if analysis. I also mentioned Edward Tufte's book on the visual display of information. If you are interested, you can find a copy here:
www.amazon.com/...
It is a great book! I also talked about Crystal Ball in class. You have access to it as a student at Stern and you can also download a free, full-featured trial version from Oracle:
www.oracle.com...
The only bad news is that it is available only for the PC. As a Mac user, I have to open my Mac as a PC (which kills me) and use Office for Windows (which kills me even more, since I don’t know any of the neat short cuts or where things are in the tool bar). I also promised you a primer on statistical distributions for using Crystal Ball more sensibly and you can find them here:
people.stern.ny...
We then turned our attention to analyzing a project in equity terms, using a Vale iron ore mine in Canada and in the process faced the question of whether we should hedge risk either at the output or input levels. If you found the risk hedging question we talked about in class this morning interesting or worth thinking about, here is a paper (actually a chapter in a book on risk that I have) that you may find useful:
people.stern.ny...
Slides: www.stern.nyu.e...
Post class test: www.stern.nyu.e...
Post class test solution: www.stern.nyu.e...
Hello Professor. In session 13, you mentioned that for banks, there is no debt because of the debts (which I presume are deposits) are raw materials for banks. Hence there can be no debt equity ratio for banks and you'll consider the cost of equity. I get that logic as banks are in the business of borrowing and lending (as a financial intermediary) and the spread is the profit they make in the process. However, banks, as per prudential norms (BASEL III), have to set aside some capital which I guess is to cover potential losses. So as per the Capital Adequacy norms (Tier II capital), they do raise subordinated debt (bonds). Indian banks have issued subordinated bonds instead of equity to fund their asset growth. My questions are (1) If the subordinated debt is classified as debt, then can we calculate debt/equity ratio or any other leverage ratio measures for banks? (2) Since banks are heavily regulated (I talk of Indian banks as most of them have CAR much higher than the BASEL III norms), does it impact the ROE of banks, especially the Indian public sector banks? Your response will be highly appreciated. Thanks & regards.
If investors need to play on commodity prices they can directly invest in the commodity market and let managers of commodity companies hedge it.
Thanks professor
In q 2 of post class test what are we discounting terminal value with ?
Hello sir,
I have question .
Is there any rules to set the limit of acceptable financing level to a company ?
We are a company heavly depending working with gobernement sector in our business , and the payments from gov. are always delays for more than 300 days and some time 2 years , but this is the nature of the business.
We have to finance our working capital through loans , short terms .
I need to know what is the cap for this financing ? When i had to stope increasing loans?
Some figures from my balance sheet.
AR: 900M.
Inventory: 230M
Loans: 400M
AP: 320M.
EQUITY: 180M.
THANK YOU
This depends on the industry, the specifics of your business, how dependent are you in any one given contract, what are the probabilities that the gov't stops working with you, what country you're in, etc., etc.
Why is the BV of Equity in slide 265 different from the one computed in slide 264?
he included working capital in 265, as he should
@@girishji thanks! Is there any specific reason why WC is added in 265 and not in 264?
Hello Professor,
You can set your Zoom invite to have all your meetings recorded when you send an invite or in your profile, which updates as auto recording of all the meetings you host.
support.zoom.us/hc/en-us/articles/202921119-Automatic-Recording
with all respect, i think the reason why there were no questions was becaused you muted all the users
They can unmute themselves and ask the questions. Leaving 200 unmuted microphones is a recipe for disaster.