Tufts University
Department of Economics
Fall 2016
Economics 60
International Economics
Instructor
Professor Enrico Spolaore
e-mail: enrico.spolaore@tufts.edu
http:/sites.tufts.edu/enricospolaore/
Office: Braker 220B
Office Hours: Tuesday and Thursday 11:
.
We have 2 classes of forecasters: Those who don't know . . . and those who don't know they don't know.
- John Kenneth Galbraith
.
The experience of being proved completely wrong is salutory. No economist should be denied it,
and none are.
- J K Galbrait
Sample Business Plan Outline
Title Page
Name of company, date, contact information, etc.
Table of Contents
Executive Summary
1. Business Concept
2. Company
3. Market Potential
4. Management Team
5. Distinct Competencies
6. Required Funding and its Use
7.
sell contract with my partner. She decided to leave the company in 1991. Although the outcome
was amicable, I was faced with a heap of lawyer's fees that could have been avoided.
When my husband, Paul, started a meat supply company in 1991, he learned fro
1.
It shall be unlawful to hunt economists within 200 feet of Senate or House hearing
rooms, libraries, whorehouses, massage parlors, special interest group offices, bars, or strip
joints.
2.
If an economist is elected to government office, it shall be a
Entrepreneurship
Business Plan Outline
A sample business plan outline that lists topics frequently covered by business plans.
Attracting Stakeholders to Your Venture
Minimizing downside exposure, finding risk-tolerant stakeholders, selling potential stake
Recommended Reading
Higgens, Robert C., Analysis for Financial Management
Security Analysis
Security analysis is about valuing the assets, debt, warrants, and equity of companies from the
perspective of outside investors using publicly available informati
ra = rf ( 1 - tc ) + a [ rm - rf ( 1 - tc ) ]
In summary, for the case in which there is personal taxation and in which Miller's Equilibrium holds ( T = 0 ),
the following equations describe the expected returns on equity, debt, and assets:
re = rf ( 1 -
However, the assumptions behind Proposition I do not all hold. One of the more unrealistic
assumptions is that of no taxes. Since the firm benefits from the tax deduction associated with
interest paid on the debt, the value of the levered firm becomes:
VL
rdebt can be calculated using the CAPM:
rdebt = rf + debt S&P500
where
S&P500 = risk premium for the market portfolio
debt = covariance between rdebt and the market return;
rf = yield to maturity on a risk-free bond having the same maturity.
If debt is no
straightforward, this technique suffers from numerous drawbacks. First, it is not very useful in identifying
areas of value creation. Second, changes in the dividend payout ratio result in a change in the calculated
value of the company even though the op
Keeping the Faith, Striving for Trust
Other factors have also influenced my decision. A decade ago, in the partnership in which I had a
controlling interest, I was chagrined to find myself tied to a partner who turned out to be unethical.
It was all I cou
The buyer just happened to be my son Louis' supervisor, and he confided that he was planning to
groom Louis to become an assistant buyer, having found him to be a diligent and intelligent worker.
At that moment, a light bulb went off in my head: "Bingo!"
The NPV of a capital investment made by a firm, assuming that the investment results in an annual free
cash flow P received at the end of each year beginning with the first year, and assuming that the asset is
financed using current debt/equity ratios, is
Finance
Corporate Finance
Finance from the viewpoint of corporate finance decision-makers, including profitability ratios, capital
structure, cost of capital, discounted cash flow methods, and mergers and acquisitions.
Security Analysis
How to value the a
The upshot has been that in our 50s - Paul is 54, and I just turned 50 - we have different views.
Paul expects to be running his meat business, River City Meat Co., until he is 62 (and I would
suspect much longer, since he gets bored when he isn't occupie
Board of Directors
Key Personnel
Organizational Chart
VIII. Capitalization and Structure
Legal Structure of Company
Present Equity Positions
Deal Structure
Exit Strategy
IX. Development and Milestones
Time may be specified on a relative scale rather than
Corporate Finance
Finance from the viewpoint of corporate finance decision-makers, including profitability ratios, capital
structure, cost of capital, discounted cash flow methods, and mergers and acquisitions.
Security Analysis
How to value the assets, d
Financial Ratios
A firm's performance can be evaluated using financial ratios. Referencing these ratios to those of
other firms allows a comparison to be made. The following is a listing of some useful ratios.
Leverage : Assets / Shareholder's Equity
Gros
Share Buyback
If a firm has extra cash on hand it may choose to buy back some of its outstanding shares. One
interesting aspect of such transactions is that they can be based on information that the firm has
that the market does not have. Therefore, a sha
An additional cash adjustment may be necessary for an increase in deferred taxes that would have a
positive impact on cash flow.
Terminal Value
In a discounted cash flow valuation, the cash flow is projected for each year into the future for a
certain num
re = ( Div1 / P0 ) + g
Capital Asset Pricing Model:
The security market line is used to calculate the expected return on equity:
re = rf + e ( rm - rf )
where
rf = risk-free rate,
rm = market return
e = equity beta
However, this model ignores the effect o
EBIT: Earnings Before Interest and Taxes
EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization
Enterprise Value: Market value of a firm's equity plus the net market value of its debt.
Enterprise value = market cap + LTD - net cash & inve
Risk Premiums
Business risk is the risk associated with a firm's operations. It is the undiversifiable
volatility in the operating earnings (EBIT). Business risk is affected by the firm's investment
decisions. A measure for the business risk is the asset
Two commonly used liquidity ratios are the current ratio and the quick ratio.
Current Ratio : defined as Current Assets / Current Liabilities.
The current ratio is a measure of the firm's ability to pay off current liabilities as they become due.
Quick Ra
The Black-Scholes formula calculates the price of a call option to be:
C = S N(d1) - X e-rT N(d2)
where
C = price of the call option
S = price of the underlying stock
X = option exercise price
r = risk-free interest rate
T = current time until expiration
WACC Method
The WACC method discounts the unlevered free cash flow at the weighted average cost of capital to arrive
at the levered value of the firm.
Cash Flows to Debt and Equity
When calculating the amount of cash flowing to debt and equity holders, it
Under the Modigliani-Miller assumptions of constant cash flows and constant debt level, the required return
on equity is:
rE = rA + (1-) (rA - rD)(D / E)
where is the corporate tax rate.
The overall cost of capital is a weighted-average of the cost of its