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Adding Depth To The Discussion Of Capital Budgeting Techniques, Tom Arnold, Terry D. Nixon
Adding Depth To The Discussion Of Capital Budgeting Techniques, Tom Arnold, Terry D. Nixon
Finance Faculty Publications
The subject of capital budgeting generally encompasses a significant percentage of any beginning finance course with net present value (NPV) often receiving the most attention. Even after this substantial time allotment, critical assumptions and comparisons of the different techniques (such as payback period, discounted payback period, NPV and IRR) are frequently glossed over due to time constraints. Consequently, the goal of this paper is to present these non-NPV techniques in a manner that allows the beginning finance student to expeditiously see the intuition, inherent assumptions, and any connection with the more popular NPV calculation. A small portion of this paper …
Improving Pro Forma Analysis Through Better Terminal Value Estimates, Tom Arnold, David S. North, Roy A. Wiggins
Improving Pro Forma Analysis Through Better Terminal Value Estimates, Tom Arnold, David S. North, Roy A. Wiggins
Finance Faculty Publications
Basic pro forma analysis often estimates the terminal value input using a simple growing perpetuity assumption. While this assumption is easy to implement, it potentially creates an upward bias in some inputs leading to lower firm or project value outputs. The purpose of this paper is to demonstrate a more accurate way to estimate the terminal value input. Further, by allowing for multiple sales growth rates and by not restricting other input variables to necessarily grow at these same rates, a more accurate, flexible, compact, and thorough analysis is possible.
An Excel Application For Valuing European Options With Monte Carlo Analysis, Tom Arnold, Stephen C. Henry
An Excel Application For Valuing European Options With Monte Carlo Analysis, Tom Arnold, Stephen C. Henry
Finance Faculty Publications
By developing the basic intuition of how Monte Carlo simulation works within an Excel spreadsheet framework, this paper allows the undergraduate student to use Monte Carlo simulation techniques to price European style options without additional sophisticated software. Further, the skills and intuition developed provide the basis for much more complex simulation techniques.
Advanced Portfolio Theory: Why Understanding The Math Matters, Tom Arnold
Advanced Portfolio Theory: Why Understanding The Math Matters, Tom Arnold
Finance Faculty Publications
The goal of this paper is to motivate the use of efficient set mathematics for portfolio analysis [as seen in Roll, 1977] in the classroom. Many treatments stop at the two asset portfolio case (avoiding the use of matrix algebra) and an alarming number of treatments rely on illustration and templates to provide a heuristic sense of the material without really teaching how efficient portfolios are generated. This is problematic considering that the benefits of understanding efficient set mathematics go beyond portfolio analysis and into such topics as regression analysis (as demonstrated here).