Sugar Cane Refining And Processing Company: A Comprehensive Case In Capital Budgeting

The Sugar Cane Refining and Processing Company is a comprehensive case covering a firm’s investment decision in fixed assets or capital budgeting.  Most senior level undergraduate and graduate corporate financial management courses cover advanced topics in capital budgeting, including measuring complex cash flows, biasness in the capital budgeting process, agency issues, managerial options and risk adjusting techniques.  To cover these relevant topics in a single case, the invented or “armchair” approach is used.  This case is completely contrived but is very educationally effective

Sugar Cane Refining And Processing Company: A Comprehensive Case In Measuring A Firms Cost Of Capital

The Sugar Cane Refining and Processing Company is a comprehensive case illustrating how a firms financial manager should calculate the firms cost of capital. Senior level undergraduate and graduate corporate financial management courses cover advanced topics in cost of capital and applying the rate in capital budgeting. To cover this relevant topic in a single case, the invented or armchair approach is used. This case is completely contrived but is very educationally effective

Measuring Losses For Small Business Interruption Claims: Depreciation Expenses

Business interruption insurance, commonly called lost profit insurance is written to protect a firm when its operations are interrupted and income is reduced due to a covered peril. The calculation of the economic loss depends on how certain expenses are used in the loss computation. Depreciation is an expense that can have significant implications on the measure of the loss figure but how depreciation should be accounted for is not specified in policies or law. This paper reviews the depreciation controversy and offers a more theoretically correct solution

A New And Better Way To Measure The Cost Of Equity Capital For Small Closely Held Firms

The purpose of this paper is to explore the theoretical structure that underlies the valuation process for small closely held firms.  Specifically, cost of capital estimate methods which appear in the current literature are examined, and a theoretically correct and simple method to measure cost of equity capital for privately held companies is offered.&nbsp

How Much Did The Gulf Oil Spill Actually Cost British Petroleum Shareholders?

On April 20, 2010, the Deepwater Horizon Drilling Platform, a British Petroleum (BP) licensed rig, exploded. Two days later the huge rig sank to thebottom of the Gulf of Mexico triggering the United States worst offshore oilspill. By April 26, investors and themarket began realizing that the costs associated with this catastrophic eventto BP could be significant and BP shares fell by over two percent. The next day BP reported its annual earningswhich showed a huge rise in profits, due in part to much higher oil prices forthe previous year and BPs common stock price increased. However, on May 6, 2010, analysts warned that the Gulf ofMexico oil spill disaster would likely cost BP over $23 billion dollars (15bn)and its shares can be expected to lag behind those of its competitors by 5% forthe lasting future. At the same time,Tony Hayward insisted the company would "bounce back" from thesetback though he could not give a timescale for when the flow of oil would behalted. This study investigated BPsstock returns using two models to determine if their stocks experiencedabnormal returns for the period April 20, 2010 through April 5, 2011. Results show that the most significant impact of the oilspill to the stock price was over the first 34 days of the event period. This study estimates a significant negativeimpact of 38% to 41% in share value for BP during this event period

A Better Way To Measure The Cost Of Equity Capital For Small Closely Held Firms

A company’s cost of capital is the average rate it pays for the use of its capital funds. Estimating the cost of equity capital for a publicly traded firm is much simpler than estimating the same for a small privately held firm. For privately owned firms there is the lack of market based financial information. In business damage cases, valuation of the firm is often a prime interest. A necessary variable in the valuation process is the estimate of the firm’s cost of capital. Part of the cost of capital is the equity holders or owners required rate of return. The purpose of this paper is to explore the theoretical structure that underlies the valuation process for business damage cases that involve privately owned businesses. Specifically, cost of equity capital estimate methods which appear in the current literature are examined, and a theoretically correct and simple method to measure cost of equity capital for closely held companies is offered

Empirical Analysis Of International Mutual Fund Performance

Since 1990 there has been a tremendous growth in the investment in international mutual funds. This growth is likely to continue as domestic stock market cools down and more U.S. investors seek higher returns as well as the diversification benefits of foreign assets.  Investors are also attracted to international funds in the belief that such funds earn abnormally high returns because of the previous relative inefficiency in those markets. This study examines the annual risk-adjusted returns using Sharpe’s Index for ten portfolios of international mutual funds for the period September 2000 through September 2006.  The international funds were analyzed by combining the funds into individual portfolios based on sector, geographics and company size.  The benchmarks for comparison were the U.S. mutual fund performance reported by MorningStar.  The risk-adjusted returns were then determined and compared to each other and to the U.S. market.  During this period, nine out of ten of the international mutual fund portfolios outperformed the U.S. market.   The portfolio that contained all International Mutual Funds (IMF) significantly outperformed on a risk-adjusted basis the fund that was made up of all of the U.S. stock mutual funds, (All U.S. Stock Funds- USSF).  Additionally, the Foreign Small Value (FSV) portfolio, Foreign Small Growth (FSG) portfolio, Emerging Markets (EM) portfolio, Latin America (LA) portfolio, and the Pacific Asia without Japan (PA-J) portfolio all had average annual returns (not adjusted for risk) that exceeded USMF’s returns by more than 10 percent