Modern Corporate Finance, Investments and Taxation (eBook)

Preface 8
Contents 12
Part I: Corporate Finance 18
Chapter 1: Introduction 19
References 22
Chapter 2: Capital Structure: Modigliani-Miller Theory 24
2.1 The Traditional Approach 24
2.2 Modigliani-Miller Theory 25
2.2.1 Modigliani-Miller Theory Without Taxes 25
2.2.2 Modigliani-Miller Theory with Taxes 27
2.2.3 Main Assumptions of Modigliani-Miller Theory 30
2.2.4 Modifications of Modigliani-Miller theory 31
References 40
Chapter 3: Modern Theory of Capital Cost and Capital Structure: Brusov-Filatova-Orekhova Theory (BFO Theory) 41
3.1 Companies with Arbitrary Lifetime (Arbitrary Age): Brusov-Filatova-Orekhova Equation 42
3.2 Comparison of Modigliani-Miller Results (Perpetuity Company) with Myers Results (1-Year Company) and Brusov-Filatova-Orekh... 44
3.3 Brusov-Filatova-Orekhova Theorem 46
3.4 From Modigliani-Miller to General Theory of Capital Cost and Capital Structure 51
3.5 BFO Theory in the Case, When the Company Ceased to Exist at the Time Moment n 53
3.5.1 Application of Formula BFO-2 55
3.5.2 Comparison of Results Obtained from Formulas BFO and BFO-2 56
References 59
Chapter 4: Bankruptcy of the Famous Trade-Off Theory 61
4.1 Optimal Capital Structure of the Company 61
4.2 Absence of the Optimal Capital Structure in Modified Modigliani-Miller Theory (MMM Theory) 64
4.3 Analysis of the Trade-Off Theory Within the Brusov-Filatova-Orekhova Theory 65
4.4 The Causes of Absence of the Optimum Capital Structure in Trade-Off Theory 75
References 85
Chapter 5: New Mechanism of Formation of the Company´s Optimal Capital Structure, Different from Suggested by Trade-Off Theory 87
5.1 Absence of Suggested Mechanism of Formation of the Company´s Optimal Capital Structure Within Modified Modigliani-Miller T... 87
5.2 Formation of the Company´s Optimal Capital Structure Within Brusov-Filatova-Orekhova (BFO) Theory 89
5.3 Simple Model of Proposed Mechanism 102
References 105
Chapter 6: The Global Causes of the Global Financial Crisis 107
References 112
Chapter 7: The Role of Taxing and Leverage in Evaluation of Capital Cost and Capitalization of the Company 113
7.1 The Role of Taxes in Modigliani-Miller Theory 114
7.2 The Role of Taxes in Brusov-Filatova-Orekhova Theory 116
7.2.1 Weighted Average Cost of Capital of the Company WACC 117
7.2.2 Equity Cost ke of the Company 119
7.2.3 Dependence of WACC and ke on Lifetime (Age) of Company 121
References 127
Chapter 8: A Qualitatively New Effect in Corporate Finance: Abnormal Dependence of Equity Cost of Company on Leverage 128
8.1 Equity Cost in the Modigliani-Miller Theory 129
8.2 Equity Cost Capital Within Brusov-Filatova-Orekhova Theory 131
8.2.1 Dependence of Equity Cost ke on Tax on Profit Rate T at Different Fixed Leverage Level L 133
8.2.2 Dependence of Equity Cost ke on Leverage Level L (the Share of Debt Capital wd) at Different Fixed Tax on Profit Rate T 134
8.3 Dependence of the Critical Value of Tax on Profit Rate T* on Parameters n,k0,kd of the Company 137
8.4 Practical Value of Effect 141
8.5 Equity Cost of 1-Year Company 142
References 145
Chapter 9: Inflation in Brusov-Filatova-Orekhova Theory and in Its Perpetuity Limit-Modigliani-Miller Theory 147
9.1 Accounting of Inflation in Modigliani-Miller Theory Without Taxes 148
9.2 Accounting of Inflation in Modigliani-Miller Theory with Corporate Taxes 152
9.3 Accounting of Inflation in Brusov-Filatova-Orekhova Theory with Corporate Taxes 154
9.3.1 Generalized Brusov-Filatova-Orekhova Theorem 154
9.4 Generalized Brusov-Filatova-Orekhova Formula Under Existence of Inflation 155
9.5 Irregular Inflation 163
9.6 Inflation Rate for a Few Periods 163
References 165
Part II: Investments 166
Chapter 10: A Portfolio of Two Securities 167
10.1 A Portfolio of Two Securities 167
10.1.1 A Case of Complete Correlation 167
10.1.2 Case of Complete Anticorrelation 169
10.1.3 Independent Securities 170
10.1.4 Three Independent Securities 172
10.2 Risk-free Security 175
10.3 Portfolio of a Given Yield (Or Given Risk) 177
10.3.1 Case of Complete Correlation () 178
References 179
Chapter 11: Investment Models with Debt Repayment at the End of the Project and Their Application 180
11.1 Investment Models 180
11.2 The Effectiveness of the Investment Project from the Perspective of the Equity Holders Only 181
11.2.1 With the Division of Credit and Investment Flows 181
11.3 Without Flows Separation 183
11.4 Modigliani-Miller Limit (Perpetuity Projects) 184
11.4.1 With Flows Separation 184
11.4.2 Without Flows Separation 185
11.5 The Effectiveness of the Investment Project from the Perspective of the Owners of Equity and Debt 186
11.5.1 With Flows Separation 186
11.5.2 Without Flows Separation 187
11.6 Modigliani-Miller Limit 188
11.6.1 With Flows Separation 188
11.6.2 Without Flows Separation 189
References 190
Chapter 12: Influence of Debt Financing on the Efficiency of Investment Projects: The Analysis of Efficiency of Investment Pro... 191
12.1 The Effectiveness of the Investment Project from the Perspective of the Equity Holders Only 192
12.1.1 With the Division of Credit and Investment Flows 192
12.1.2 Without Flows Separation 200
12.2 The Effectiveness of the Investment Project from the Perspective of the Equity and Debt Owners 208
12.2.1 With the Division of Credit and Investment Flows 208
12.2.2 Without Flows Separation 216
References 224
Chapter 13: The Analysis of the Exploration of Efficiency of Investment Projects of Arbitrary Duration (Within Brusov-Filatova... 225
13.1 The Effectiveness of the Investment Project from the Perspective of the Equity Holders Only 225
13.1.1 With the Division of Credit and Investment Flows 225
13.1.2 Without Flow Separation 233
13.2 The Effectiveness of the Investment Project from the Perspective of the Owners of Equity and Debt 242
13.2.1 With the Division of Credit and Investment Flows 242
13.2.2 Without Flow Separation 250
13.3 The Elaboration of Recommendations on the Capital Structure of Investment of Enterprises, Companies, Taking into Account ... 258
13.3.1 General Conclusions and Recommendations on the Definition of Capital Structure of Investment of Enterprises 258
References 260
Chapter 14: Investment Models with Uniform Debt Repayment and Their Application 261
14.1 Investment Models with Uniform Debt Repayment 261
14.2 The Effectiveness of the Investment Project from the Perspective of the Equity Holders Only 263
14.2.1 With the Division of Credit and Investment Flows 263
14.2.2 Without Flows Separation 264
14.3 The Effectiveness of the Investment Project from the Perspective of the Owners of Equity and Debt 265
14.3.1 With Flows Separation 265
14.3.2 Without Flows Separation 265
14.4 Example of the Application of the Derived Formulas 266
References 267
Chapter 15: Is It Possible to Increase Taxing and Conserve a Good Investment Climate in the Country? 269
15.1 Influence of Tax on Profit Rates on the Efficiency of the Investment Projects 269
15.2 Investment Models 271
15.3 Borrowings Abroad 273
15.4 Dependence of NPV on Tax on Profit Rate at Different Leverage Levels 275
15.5 At a Constant Value of Equity Capital (S=Const) 276
15.6 Without Flow Separation 278
15.6.1 At a Constant Value of the Total Invested Capital (I=Const) 278
15.6.2 At a Constant Value of Equity Capital (S=Const) 280
References 282
Chapter 16: Is It Possible to Increase the Investment Efficiency by Increasing Tax on Profit Rate? An Abnormal Influence of th... 284
16.1 Dependence of NPV on Leverage Level L at Fixed Levels of Tax on Profit Rate t 284
16.1.1 The Effectiveness of the Investment Project from the Perspective of the Equity Holders Only 284
16.1.2 The Effectiveness of the Investment Project from the Perspective of the Equity and Debt Holders 295
16.2 Dependence of NPV on Tax on Profit Rate at Fixed Leverage Levels L 301
16.2.1 The Effectiveness of the Investment Project from the Perspective of the Equity Holders Only 301
16.2.2 The Effectiveness of the Investment Project from the Perspective of the Equity and Debt Holders 308
References 315
Chapter 17: Optimizing the Investment Structure of the Telecommunication Sector Company 316
17.1 Investment Analysis and Recommendations for Telecommunication Company ``Nastcom Plus´´ 317
17.1.1 The Dependence of NPV on Investment Capital Structure 318
17.1.2 The Dependence of NPV on the Equity Capital Value and Coefficient beta 327
17.2 Effects of Taxation on the Optimal Capital Structure of Companies in the Telecommunication Sector 333
References 345
Chapter 18: The Golden Age of the Company (Three Colors of Company´s Time) 346
18.1 Dependence of WACC on the Lifetime(Age) of the Company n at Different Leverage Levels 350
18.2 Dependence of WACC on the Lifetime (Age) of the Company n at Different Values of Capital Costs (Equity, k0, and Debt, kd)... 352
18.3 Dependence of WACC on the Lifetime(Age) of the Company n at Different Values of Debt Capital Cost, kd, and Fixed Equity C... 355
18.4 Dependence of WACC on the Lifetime(Age) of the Company n at Different Values of Equity Cost, k0, and Fixed Debt Capital C... 359
18.5 Dependence of WACC on the Lifetime(Age) of the Company n at High Values of Capital Cost (Equity, k0, and Debt, kd) and Hi... 362
18.6 Further Investigation of Effect 368
References 371
Chapter 19: Conclusion 373
References 374