How Big is the Tax Advantage to Debt?

This paper uses an option valuation model of the firm to answer the question, "What magnitude tax advantage to debt is consistent with the range of observed corporate debt ratios?" We incorporate into the model differential personal tax rates on capital gains and ordinary income. We conclude that variations in the magnitude of bankruptcy costs across firms can not by itself account for the simultaneous existence of levered and unlevered firms. When it is possible for the value of the underlying assets to junip discretely to zero, differences across firms in the probability of this jump can account for the simultaneous existence of levered and unlevered firms. Moreover, if the tax advantage to debt is small, the annual rate of return advantage offered by optimal leverage may be so small as to make the firm indifferent about debt policy over a wide range of debt-to-firm value ratios.

Debt Policy and the Rate of Return Premium to Leverage

Equilibrium in the market for real assets requires that the price of those assets be bid up to reflect the tax shields they can offer to levered firms.Thus there must be an equality between the market values of real assets and the values of optimally levered firms. The standard measure of the advantage to leverage compares the values of levered and unlevered assets, and can be misleading and difficult to interpret. We show that a meaningful measure of the advantage to debt is the extra rate of return, net of a market premium for bankruptcy risk, earned by a levered firm relative to an otherwise-identical unlevered firm. We construct an option valuation model to calculate such a measure and present extensive simulation results. We use this model to compute optimal debt maturities, show how this approach can be used for capital budgeting, and discuss its implications for the comparison of bankruptcy costs versus tax shields.

Thermomechanical behavior of plasma-sprayed ZrO2-Y2O3 coatings influenced by plasticity, creep and oxidation

Thermocycling of ceramic-coated turbomachine components produces high thermomechanical stresses that are mitigated by plasticity and creep but aggravated by oxidation, with residual stresses exacerbated by all three. These residual stresses, coupled with the thermocyclic loading, lead to high compressive stresses that cause the coating to spall. A ceramic-coated gas path seal is modeled with consideration given to creep, plasticity, and oxidation. The resulting stresses and possible failure modes are discussed

Using Community Based Participatory Action Research as Service-learning for Tribal College Students

This work reports the methodological approach used in a Community Based Participatory Research (CBPR) project that incorporated Northern Plains tribal college students from four different communities as data gatherers and co-researchers in their communities. We report preliminary findings of perceptions of service learning among the participating tribal college students based on reflective interviews

Atmospheric environmental implications of propulsion systems

Three independent studies have been conducted for assessing the impact of rocket launches on the earth's environment. These studies have addressed issues of acid rain in the troposphere, ozone depletion in the stratosphere, toxicity of chemical rocket exhaust products, and the potential impact on global warming from carbon dioxide emissions from rocket launches. Local, regional, and global impact assessments were examined and compared with both natural sources and anthropogenic sources of known atmospheric pollutants with the following conclusions: (1) Neither solid nor liquid rocket launches have a significant impact on the earth's global environment, and there is no real significant difference between the two. (2) Regional and local atmospheric impacts are more significant than global impacts, but quickly return to normal background conditions within a few hours after launch. And (3) vastly increased space launch activities equivalent to 50 U.S. Space Shuttles or 50 Russian Energia launches per year would not significantly impact these conclusions. However, these assessments, for the most part, are based upon homogeneous gas phase chemistry analysis; heterogeneous chemistry from exhaust particulates, such as aluminum oxide, ice contrails, soot, etc., and the influence of plume temperature and afterburning of fuel-rich exhaust products, need to be further addressed. It was the consensus of these studies that computer modeling of interactive plume chemistry with the atmosphere needs to be improved and computer models need to be verified with experimental data. Rocket exhaust plume chemistry can be modified with propellant reformulation and changes in operating conditions, but, based upon the current state of knowledge, it does not appear that significant environmental improvements from propellant formulation changes can be made or are warranted. Flight safety, reliability, and cost improvements are paramount for any new rocket system, and these important aspects cannot be compromised. A detailed environmental cost-benefit-risk analysis must be conducted before any new chemistry or changes in rocket operating conditions should be seriously considered for any future space or defense applications. This paper presents a summary of the results of environmental assessments contained in these independent studies

Understanding Stock Price Behavior around the Time of Equity Issues

It is well-documented that stock prices rise significantly prior to an equity issue, and fall upon announcement of the issue. We expand on earlier studies by using a large sample which includes OTC firms, by examining the cross-sectional properties of the price rise, and by using accounting data to track the pattern of debt ratios and Tobin's q around the time of equity issues. We consider a number of explanations for our results, and conclude that the data is largely consistent with informational models in which managers are asymmetrically informed about the value of the firm. Surprisingly, debt ratios do not increase prior to equity issues, suggesting that strained debt capacity is not the main reason for equity issues. The behavior of Tobin's q is consistent with equity issues being used to finance new investments.

Cost comparison of orthopaedic fracture pathways using discrete event simulation in a Glasgow hospital

Objective: Healthcare faces the continual challenge of improving outcome whilst aiming to reduce cost. The aim of this study was to determine the micro cost differences of the Glasgow non-operative trauma virtual pathway in comparison to a traditional pathway. Design:  Discrete event simulation was used to model and analyse cost and resource utilisation with an activity based costing approach. Data for a full comparison before the process change was unavailable so we utilised a modelling approach, comparing a Virtual Fracture Clinic (VFC) to a simulated Traditional Fracture Clinic (TFC). Setting:  The orthopaedic unit VFC pathway pioneered at Glasgow Royal Infirmary has attracted significant attention and interest and is the focus of this cost study. Outcome measures: Our study focused exclusively on non-operative trauma patients attending Emergency Department or the minor injuries unit and the subsequent step in the patient pathway. Retrospective studies of patient outcomes as a result of the protocol introductions for specific injuries in association with activity costs from the models.ResultsPatients are satisfied with the new pathway, the information provided and the outcome of their injuries (Evidence Level IV). There was a 65% reduction in the number of first outpatient face-to-face attendances in orthopaedics. In the VFC pathway, the resources required per day were significantly lower for all staff groups (p=<0.001). The overall cost per patient of the VFC pathway was £22.84 (95% CI: 21.74, 23.92) per patient compared with £36.81 (95% CI: 35.65, 37.97) for the TFC pathway.  Conclusions:  Our results give a clearer picture of the cost comparison of the virtual pathway over a wholly traditional face-to-face clinic system. The use of simulation-based stochastic costings in healthcare economic analysis has been limited to date, but this study provides evidence for adoption of this method as a basis for its application in other healthcare settings