Finance and Financial Management Commons^™

The Abcs Of Modified Bond Duration And Wxyzs Of Bond Convexity, Tom Arnold, Andrew C. Szakmary

Finance Faculty Publications

By breaking the mathematical derivation of Macaulay Duration, Modified Duration, and Bond Convexity into smaller easily calculated component parts, a more manageable means of calculation for these bond measures emerges for the student. Further, an Excel spreadsheet or an algorithm within a programming language can also be implemented using these smaller component calculations. The Excel template provided can be made into an assignment or used as a resource for the student.

Required Minimum Distribution (Rmd) Spreadsheet Calculators Based On The Secure Act Of 2022, Tom Arnold, John H. Earl, Jr., Cassandra D. Marshall

Finance Faculty Publications

Required Minimum Distribution (RMD) Spreadsheet Calculators

Based on the SECURE Act of 2022

The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) of 2022 made a second round of changes (relative to the SECURE Act of 2019) to the required minimum distribution (RMD) schedule for individual retirement accounts (IRAs) and defined contribution retirement plans. Excel spreadsheet calculators are developed to calculate the new annual RMD cash flows throughout retirement for those who are retired and for those who are planning to retire. The spreadsheet calculators also allow savings to accrue with interest if the RMD is in excess …

Tiger Investment Partners. “To Stream Or Not To Stream” Case Study, Roger R. Schnorbus

Robins School of Business White Paper Series, 1980-2022

Tiger Investment Partners (TIP) TIP is a boutique technology investment firm in Richmond, VA. It was founded in 2012 by its three principal partners and is managing over $300 million in investment funds. Its stated mission is to someday be as successful as Berkshire Hathaway with a focus on firms that were or would be major disruptors in their given industries.

Simplified Portfolio Optimization Using Cramer’S Rule In Excel, Tom Arnold, Joseph Farizo, Terry D. Nixon

Finance Faculty Publications

The matrix algebra associated with finding minimum variance portfolio weights, mapping the efficient frontier, and determining the tangency portfolio weights is greatly simplified in Excel by applying Cramer’s Rule. Only a scant knowledge of linear algebra is necessary for producing a very intuitive presentation for a multi-asset portfolio. The technique is very easily replicated for an assignment or for providing a classroom resource.

Monte Carlo And Bootstrapping Carry Trade Simulations In Excel, Tom Arnold, C. Mitchell Conover, Joseph Farizo

Finance Faculty Publications

In a currency carry trade, an investor borrows money in a low interest rate currency and invests in a high interest rate currency. The trade is profitable if the future exchange rate does not adjust to the interest rate differential. After downloading exchange rate data, a Monte Carlo simulation of a carry trade is performed in Excel based on a normal distribution and the data’s mean and standard deviation. A bootstrapping carry trade simulation exercise is also generated by randomly selecting observations from the historical data. In contrast to the Monte Carlo simulation, the bootstrapping exercise preserves the skewness within …

Using Excel To Simulate A Financial Calculator And Excel Tvm Formulas, Maura Alexander, Tom Arnold, Joseph Farizo

Finance Faculty Publications

Excel is used to build a simulation of the TI BAII-Plus financial calculator to illustrate the N, I/Y, PV, PMT, and FV inputs. Unlike other financial calculator simulators, this template also displays the corresponding Excel functions to aid in transitioning the student to using Excel for financial analysis.

Visual Timelines In Excel To Illustrate Tvm Calculations, Maura Alexander, Tom Arnold, Joseph Farizo

Finance Faculty Publications

Time value of money calculations are illustrated through developing a timeline with cash flow graphics in Excel. The cash flow graphics can be used in the live or virtual classroom and as a resource for students outside of the classroom. Further, the graphic is readily adjustable to different scenarios making it useful for multiple time value of money topics.

Visual Presentation Of Mirr And Mnpv Calculations, Tom Arnold, Joseph Farizo

Finance Faculty Publications

Project cash flows and modified cash flows are presented in an illustrative graphic within Excel for the live or virtual classroom. Further, the graphic computes and displays the relevant modified internal rate of return (MIRR) and modified net present value (MNPV), with associated formulas. The presentation allows for a discussion of the reinvestment assumption attributed to the internal rate of return (IRR) and the net present value (NPV) calculations.

Chronic Disease Management: How It And Analytics Create Healthcare Value Through The Temporal Displacement Of Care, Steve M. Thompson, Johnathan Whitaker, Rajiv Kohli, Craig Jones

Finance Faculty Publications

The treatment of chronic diseases consumes 86% of U.S. healthcare costs. While healthcare organizations have traditionally focused on treating the complications of chronic diseases, advances in information technology (IT) and analytics can help clinicians and patients manage and slow the progression of chronic diseases to result in higher quality of life for patients and lower healthcare costs.

We build on prior research to introduce the notion of temporal displacement of care (TDC), in which IT and analytics create healthcare value by displacing the time at which providers and patients make interventions to improve healthcare outcomes and reduce costs. We propose …

[Introduction To] Fundamentals Of Advanced Accounting: Seventh Edition, Joe B. Hoyle, Thomas F. Schaefer, Timothy S. Doupnik

Bookshelf

Fundamentals of Advanced Accounting, 7th edition, is ideal for those schools wanting to cover twelve chapters in their advanced accounting course. This concise text allows students to think critically about accounting, just as they will do preparing for the CPA exam. The text continues to show the development of financial reporting as a product of intense and considered debate that continues today and will into the future.

Anticipation And Reaction To Going Concern Modified Audit Opinions By Sophisticated Investors, Marshall A. Geiger, Abdullah Kumas

Accounting Faculty Publications

The purpose of this paper is to examine whether institutional investors (i) anticipate a distressed firm's receipt of a first‐time going‐concern modified audit opinion, and (ii) react to a first‐time going‐concern modified opinion by engaging in abnormal net selling of firm shares. Using a proprietary database of US institutional investor trades, we find that institutional investors are net sellers of first‐time going‐concern opinion firms beginning 6 months before the release of the report and remain net sellers through the subsequent 3 months. We also find that the severity of the reasons auditors modify their opinions is associated with increased trading …

Investcorp, Jeremy Kappes, Haynes King, Jamie Mattioli, Prasad Vaze, Timothy Kyle Benusa, Sam Gottwald, Thomas Arnold, Jeffrey S. Harrison

Robins Case Network

Investcorp is a publicly traded global alternative asset management company headquartered in Manama, Bahrain. It manages a huge hedge fund, along with other assets. The case describes Investcorp’s history, investment strategies, and major competitors. The company has a highly aggressive growth strategy, but it is also facing the retirement of its CEO.

Salesforce.Com, Sean Bielawski, Charles Kempe, Austin Mcdaniel, Adam Tate, Jeffrey S. Harrison

Robins Case Network

Innovation! One of the most innovative companies, and also one of the best companies to work for, is losing money. This case traces the meteoric rise of the number one customer relationship management service provider against huge rivals such as Microsoft and Oracle. Detail regarding their highly innovative Scrum system is provided, along with detail regarding their marketing approach. How can Salesforce.com regain profitability while continuing to grow in a highly competitive industry?

Ryanair Holdings, Nicole Blake Tran, Jamie Perkinson, Caron Sinnenberg, Lionel Tarcia, Jeffrey S. Harrison

Robins Case Network

The crass Irish CEO of Ryanair presides over a modern miracle. Ryanair, with its ridiculously low prices and poor reputation for service, has become one of Europe’s largest and most successful airlines. Employees pay for their own training, flights are cancelled if they won’t be full enough to be profitable, and the concept of “no frills” is heartily embraced. However, some new competitors have come on the scene, and Ryanair may be forced to improve its service and reputation to keep up.

One-Step Bond Pricing, Tom Arnold

Finance Faculty Publications

This paper re-works the traditional formula for pricing a bond with a present value annuity and a single discounted cash flow into a "one-step' bond pricing formula. The new derivation allows for a clear presentation of the relationship between a bond's coupon yield and its yield to maturity and a quick means for pricing a bond.

A Model To Support It Infrastructure Planning And The Allocation Of It Governance Authority, Steven M. Thompson, Peter Ekman, Daniel Selby, Jonathan W. Whitaker

Management Faculty Publications

Information technology (IT) requires a significant investment, involving up to 10.5% of revenue for some firms. Managers responsible for aligning IT investments with their firm's strategy seek to minimize technology costs, while ensuring that the IT infrastructure can accommodate increasing utilization, new software applications, and modifications to existing software applications. It becomes more challenging to align IT infrastructure and IT investments with firm strategy when firms operate in multiple geographic markets, because the firm faces different competitive positions and unique challenges in each market.

We discussed these challenges with IT executives at four Forbes Global 2000 firms headquartered in Northern …

Releasing Information In Xbrl: Does It Improve Information Asymmetry For Early U.S. Adopters?, Marshall A. Geiger, David S. North, Daniel D. Selby

Accounting Faculty Publications

Information released in XBRL is intended to improve the quality and accessibility of SEC filings, leading to less information asymmetry in the equity market. Research findings on the effects of XBRL on information asymmetry in the US., however, are mixed. Kim et al. (2012) reports that XBRL reduces information asymmetry while Blankespoor et al. (2012) reports that XBRL increases information asymmetry. In contrast to these prior studies, we report that the answer as to whether XBRL affects information asymmetry is matter of firm size. In this study we examine shifts in two measures of information asymmetry for early adopters of …

Chesapeake Energy Corporation, Brian Blaylock, David Earle, Danielle Smith, Jeffrey S. Harrison

Robins Case Network

Chesapeake is the second largest producer of natural gas in the United States, but the company is struggling financially. In addition, its CEO left the company amid governance concerns. This case provides a description of upstream, midstream and downstream energy production and trends in those segments, and how Chesapeake has shifted its emphasis in an effort to increase its performance. The extreme price volatility in this industry is also described, as are technological advances in areas such as “fracking.”

How Large Are The Benefits Of Emerging Market Equities?, C. Mitchell Conover, Gerald R. Jensen, Robert R. Johnson

Finance Faculty Publications

We perform a comprehensive evaluation of the benefits of emerging market equities by extending previous research in four fundamental ways. The contribution of this study is that it 1) evaluates a more complete sample; 2) examines performance measures that account for asymmetric return distributions; 3) separates emerging markets by region; and 4) considers the influence that the market environment has on the benefits of emerging market investments. Our results suggest that previous research has understated the benefits associated with investing in emerging markets. We find that broad emerging market indices have relatively low downside risk, which results in Sortino ratios …

The Effect Of State Corporate Income Tax Rate Cuts On Job Creation, Xiaobing Shuai, Christine Chmura

School of Professional and Continuing Studies Faculty Publications

This paper compares the employment growth of states that enacted corporate income tax rate cuts in the past 23 years with those making no changes. Overall employment comparisons from 1990 to 2012 suggest that a reduction in the corporate income tax rate is associated with faster job creation. The states that cut corporate income tax rates started with slower employment growth than the states that made no changes. However, the growth gaps between the two groups of states disappeared in about five years after the tax cuts were made. Regression results confirm the observation that lower corporate tax rates have …

An Easy Method To Introduce Mirr Into Introductory Finance Classes, Tom Arnold, Terry D. Nixon

Finance Faculty Publications

In this paper, the modified internal rate of return (MIRR) is demonstrated to be a holding period return calculation that is not dependent on knowing a project's internal rate of return (IRR) nor the process for finding the IRR. Further, the MIRR calculation can be directly connected to the calculation of the profitability index (PI) and the net present value (NPV) if project cash flows are discounted using a firm's weighted average cost of capital. This connection to the PI and NPV allows for an intuitively appealing presentation of the MIRR calculation.

Sony Corporation: Reinventing Itself To Rediscover The Technological Edge, Chatterji Dheeman, Hayes Schildwachter, Jeffrey S. Harrison

Robins Case Network

Sony is a global conglomerate with a wide variety of businesses in its portfolio, but a heavy emphasis on electronics and related products. Due to a number of setbacks such as the earthquake in Japan and a weak global economy, the firm has experienced sales declines and negative earnings in recent years. In early 2012 the company announced a major restructuring and new strategy to regain its edge. However, Sony has an uphill battle.

Do External Financial Statement Auditors Sufficiently Adjust Their Audit Plans For Automated-Control Deficiencies?, Daniel D. Selby

Accounting Faculty Publications

Shelton (1999) found that experience, based on rank, mitigates the influence of less-than diagnostic evidence in going concern assessments. But, numerous studies (e.g., Abdolmohammadi and Wright 1987) question the external validity of studies that use rank to determine experience. I suspect that specialized domain experience is a better measure because all auditor ranks do not have procedural knowledge in going concern decisions but many auditors may have procedural knowledge in audit planning (AICPA 2008) and automated controls (Hunton et al. 2004). I investigate whether external financial statement auditors (henceforth auditors) sufficiently adjust their audit plans for material-automated-control-weaknesses. I determine the …

Extending The Arnold-Eisemann Algorithm For Pro Forma Circularity With A Specific Mix Of New Debt And New Equity, Tom Arnold

Finance Faculty Publications

Arnold and Eisemann (2008) developed an algorithm that calculates the value of long-term debt when long-term debt is considered the "plug" or "slack" term within a pro forma analysis. In this paper, the algorithm is presented in a slightly different form and adjusted for the use of a target mix of new debt and new stock.

Using Real World Applications To Policy And Everyday Life To Teach Money And Banking, Dean D. Croushore

Economics Faculty Publications

Teaching a course in money and banking can be simultaneously challenging and easy. It is challenging because teaching the course well often requires a fair amount of institutional knowledge, which an instructor may not have acquired in graduate school. However, it is easy because the course can be geared to the coverage of current events, so economic data releases and the state of the economy help the instructor develop a new course every semester and produce an interesting lecture every day.

There are many different ways to teach a course on money and banking. At most schools, the only prerequisite …

Maintaining A Flexible Payout Policy In A Mature Industry: The Case Of Crown Cork And Seal In The Connelly Era, James Ang, Tom Arnold, C. Mitchell Conover, Carol Lancaster

Finance Faculty Publications

As related in these pages, the history of Crown Cork and Seal (hereafter known as “Crown”) provides us with a case of a company that stopped paying dividends but establish a disciplined share repurchase policy and did so for all the right reasons. Under family ownership in the 1950s, Crown lost market share and was on the brink of bankruptcy when its largest shareholder, John Connelly, was elected chairman of the board in 1957. Under John Connelly’s leadership, the firm restructured its operations and began a payout policy based solely on stock repurchases. During the Connelly era, the firm did …

Real Options Analysis And The Assumptions Of Corporate Finance: A Non-Technical Review, Tom Arnold, Richard L. Shockley Jr.

Finance Faculty Publications

This paper provides a non-technical presentation of the theoretical foundations of corporate financial decision making and the net present value (NPV) rule. Our objective is to show that the concepts of value and value creation arise from a single, unified framework that is firmly rooted in neoclassical microeconomic theory. This, in turn, allow us to demonstrate that the corporate valuation approach generically known as real options analysis is perfectly justifiable - without further qualification - in any situation when investors want managers to maximize NPV.

Paul M. Klekner (B), Roger R. Schnorbus

Robins School of Business White Paper Series, 1980-2022

This is a fictitious case study, including the name of the restaurant and the people involved.

Paul Klekner graduated first in his class from the Culinary Institute of America (CIA) in 1998; his fellow students named him the chef most likely to succeed in the future. After graduation, he and his wife, Sarah, moved back to his home in Richmond, Virginia where he was employed as a chef at several restaurants including Bottega and Old Original Bookbinders. In 2003, he decided to open his own restaurant, Rogerios, in the Tobacco Row section of Richmond. With an inheritance of $300,000 he …

The Timeliness Of Accounting Disclosures In International Security Markets, C. Mitchell Conover, Robert E. Miller, Andrew Szakmary

Finance Faculty Publications

In this study, we examine financial reporting lags, the incidence of late filing, and the relationship between reporting lags, firm performance and the degree of capital market scrutiny. We use a large sample of firms spanning 22 countries over an eleven-year period. A focal point of our analysis is whether the incidence of late filing, and the relations between reporting days and other variables, differ systematically between common and code law countries. Relative to U.S. firms, we report that the time taken and allowed for filing is usually longer in other countries and that the statutory requirement is more frequently …

Debt Financing Does Not Create Circularity Within Pro Forma Analysis, Tom Arnold, Peter C. Eisemann

Finance Faculty Publications

Using debt to finance a firm's external financing need within a pro forma analysis can lead to "circularity" when finding the appropriate value for debt. The circularity incorrectly implies that there is no direct solution for finding the value of debt. In this paper, a direct solution for the value of debt is found; thereby showing that circularity need not exist. Further, the technique is demonstrated to be more accurate than the "additional funds needed" (AFN) approach featured in many texts.