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Full-Text Articles in Business
Using The Wacc To Value Real Options, Tom Arnold, Timothy Falcon Crack
Using The Wacc To Value Real Options, Tom Arnold, Timothy Falcon Crack
Finance Faculty Publications
We present a real option valuation using the weighted average cost of capital (WACC). This is an alternative to risk-neutral real option valuation. Using the WACC involves a marginal increase in mathematical complexity, but it is easy to implement in a spreadsheet, and it is easy to present to management. Our analysis reveals, however, that because the real option valuation is immune to choices of admissible discount rates (as per Arnold and Crack 2003a), the critical issue is correct estimation of volatility, not choice of discount rate. We also point out that the natural and conservative tendency to overestimate risk …
Interest Rate Parity In Excel, Tom Arnold, Bonnie Buchanan
Interest Rate Parity In Excel, Tom Arnold, Bonnie Buchanan
Finance Faculty Publications
This paper develops interest rate parity in a framework that is easily implemented in Excel. The student can either be given the paper to see how the code is developed using the intuition of the interest rate parity framework or the student can be taught the interest rate parity framework and develop the Excel code as an assignment. Using either teaching method or the other exercises suggested in the paper, the student is able to understand how traders exploit violations of interest parity and become more comfortable with basic concepts, such as direct quotes and indirect quotes.
Understanding The Impact Of Financial Decisions On Financial Statements: A Pedagogical Note, Tom Arnold, Leroy Brooks, Terry D. Nixon
Understanding The Impact Of Financial Decisions On Financial Statements: A Pedagogical Note, Tom Arnold, Leroy Brooks, Terry D. Nixon
Finance Faculty Publications
Viable financial planning requires financial managers' understanding of the consequences of impending decisions on their company's financial performance and position. Understanding the impact of prior decisions on their financial statements also enables future decisions aimed at improving their shareholders' wealth. This note intends to contribute to developing this capacity in finance students. We provide a presentation format directly connecting financial decisions to financial statement impacts. Bridging material covered in accounting courses and a finance student's needs as a possible future manager or analyst, this classroom pedagogy supplements and reinforces the objectives of the financial planning component of a finance course.