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Contingent Value Rights
In corporate finance, Contingent Value Rights (CVR) are rights granted by an acquirer to a company’s shareholders, facilitating the transaction where some uncertainty is inherent. CVRs may be separately tradeable securities; they are occasionally acquired (or shorted) by specialized hedge funds. Forms These rights typically take either of two forms: (1) Event-driven CVRs compensate the owners for yet to eventuate positive developments in their business - hence protecting the acquirer against the valuation risk inherent in overpaying. (2) Price-protection CVRs are granted when payment is share based - protecting the acquired company, by providing a hedge against downside price risk in the acquirer's equity. In the first case, CVRs are granted Motley Fool (2018)''What Is a Contingent Value Right?''/ref> in scenarios in which the acquiring company does not wish to pay for a product that might not work, has a limited market, or might need significant investment; wherea ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Corporate Finance
Corporate finance is an area of finance that deals with the sources of funding, and the capital structure of businesses, the actions that managers take to increase the Value investing, value of the firm to the shareholders, and the tools and analysis used to allocate financial resources. The primary goal of corporate finance is to Shareholder value, maximize or increase valuation (finance), shareholder value.SeCorporate Finance: First Principles Aswath Damodaran, New York University's Stern School of Business Correspondingly, corporate finance comprises two main sub-disciplines. Capital budgeting is concerned with the setting of criteria about which value-adding Project#Corporate finance, projects should receive investment funding, and whether to finance that investment with ownership equity, equity or debt capital. Working capital management is the management of the company's monetary funds that deal with the short-term operating balance of current assets and Current liability, cu ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Accretion (finance)
In finance, the term accretion refers to a positive change in value following a transaction; it is applied in several contexts. When trading in bonds, accretion is the capital gain expected when a bond is bought at a discount to its par value, given that, it is expected to mature at par. Accretion can be thought of as the antonym of amortization: Accreting swap vs Amortising swap. In a corporate finance context, accretion is essentially the actual value created after a particular transaction. A deal is earnings accretive if the acquirer's price-to-earnings ratio is greater than the target's price-to-earnings ratio, including the acquisition premium. Similarly, re mergers and acquisitions, accretion is referred to as the increase in a company's earnings per share on a pro forma basis following the transaction. (For example, if Company A has $1.00 earnings per share and after acquiring Company B, the combined company's earnings per share is $1.25, then the acquisition would be ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Earnout
Earnout or earn-out refers to a pricing structure in mergers and acquisitions where the sellers must "earn" part of the purchase price based on the performance of the business following the acquisition. Earnouts are often employed when the buyer(s) and seller(s) disagree about the expected growth and future performance of the target company. A typical earnout takes place over a three to five-year period after closing of the acquisition and may involve anywhere from ten to fifty percent of the purchase price being deferred over that period. Buyers usually value companies based on historical performance while sellers may weight more heavily projections about higher growth prospects. With an earnout the seller's shareholders are paid an additional sum if some predefined performance targets are met. (See contingent value rights, having a similar function.) Earnouts are popular among private equity investors, who do not necessarily have the expertise to run a target business after clos ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Hold-up Problem
In economics, the hold-up problem is central to the theory of incomplete contracts, and shows the difficulty in writing complete contracts. A hold-up problem arises when two factors are present: # Parties to a future transaction must make noncontractible relationship-specific investments before the transaction takes place. # The specific form of the optimal transaction (such as quality-level specifications, time of delivery, what quantity of units) cannot be determined with certainty beforehand.Rogerson, W.P. (1992). Contractual Solutions to the Hold-Up Problem. ''The Review of Economic Studies, 4''(59), 777-793. The hold-up problem is a situation where two parties may be able to work most efficiently by cooperating but refrain from doing so because of concerns that they may give the other party increased bargaining power and thus reduce their own profits. When party A has made a prior commitment to a relationship with party B, the latter can 'hold up' the former for the val ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Strip Financing
Strip financing is the repackaging of different types of obligations—debt, preferred stock, common stock etc.—into one security. The idea is to ease conflicts of interest and agency costs between the holders of the initial components, bond and stockholders. In deals that are strip financed, returns to investors are generally derived from their equity positions (seen through how investors from time to time take losses on the debt components of the strip). Therefore, in a situation where a company is acquired through a strip-financed deal, and that company begins to default on loans, investors are more willing to renegotiate lending terms, thus avoiding the hold-up problem often seen in prior to and during bankruptcy. Also, repackaging can raise a securities' liquidity. One popular form developed in Canada was the Income Trust, which combined income from a high yield bond with a stock dividend. Beginning in 2003 this concept was expanded to the U.S. when "Income Deposit Secu ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Asian Option
An Asian option (or ''average value'' option) is a special type of option contract. For Asian options, the payoff is determined by the average underlying price over some pre-set period of time. This is different from the case of the usual European option and American option, where the payoff of the option contract depends on the price of the underlying instrument at exercise; Asian options are thus one of the basic forms of exotic options. There are two types of Asian options: Average Price Option (fixed strike), where the strike price is predetermined and the averaging price of the underlying asset is used for payoff calculation; and Average Strike Option (floating strike), where the averaging price of the underlying asset over the duration becomes the strike price. One advantage of Asian options is that these reduce the risk of market manipulation of the underlying instrument at maturity. Another advantage of Asian options involves the relative cost of Asian options compared to ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Aswath Damodaran
Aswath Damodaran (born 24 September 1957), is an Indian-American Professor of Finance at the Stern School of Business at New York University (Kerschner Family Chair in Finance Education). He is well known as the author of several widely used academic and practitioner texts on valuation, corporate finance and investment management; as well as a provider of comprehensive data for valuation purposes. Background Damodaran has been a professor at New York University's Stern School of Business, since 1986, focusing on corporate finance and equity valuation. He is on the faculty of the TRIUM Global Executive MBA Program, an alliance of NYU Stern, the London School of Economics and HEC School of Management. Other teaching includes the "Valuation" program for Stern Executive Education as well as the "Advanced Valuation" and "Corporate Finance" online certificates at NYU Stern. From 1984 to 1986 he was a visiting lecturer at the University of California, Berkeley. He was bo ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Real Options Valuation
Real options valuation, also often termed real options analysis,Adam Borison (Stanford University)''Real Options Analysis: Where are the Emperor's Clothes?'' (ROV or ROA) applies option (finance), option Valuation of options, valuation techniques to capital budgeting decisions.Campbell, R. Harvey''Identifying real options'' Duke University, 2002. A real option itself, is the right—but not the obligation—to undertake certain business initiatives, such as deferring, abandoning, expanding, staging, or contracting a Project#Corporate_finance, capital investment project. For example, real options valuation could examine the opportunity to invest in the expansion of a firm's factory and the alternative option to sell the factory.Nijssen, E. (2014)''Entrepreneurial Marketing; an effectual approach. Chapter 2'' Routelegde, 2014. Real options are most valuable when uncertainty is high; management has significant flexibility to change the course of the project in a favorable direction a ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Contingent Claim Valuation
In finance, a contingent claim is a derivative whose future payoff depends on the value of another “underlying” asset,Dale F. Gray, Robert C. Merton and Zvi Bodie. (2007). Contingent Claims Approach to Measuring and Managing Sovereign Credit Risk. ''Journal of Investment Management'', Vol. 5, No. 4, (2007), pp. 5–28 M. J. Brennan (1979). The Pricing of Contingent Claims in Discrete Time Models. ''The Journal of Finance''. Vol. 34, No. 1 (Mar., 1979), pp. 53-68 or more generally, that is dependent on the realization of some uncertain future event.Sean Ross What kinds of derivatives are types of contingent claims? Investopedia These are so named, since there is only a payoff under certain contingencies."Approaches to valuation", Ch2. in Aswath Damodaran (2012). ''Investment Valuation: Tools and Techniques for Determining the Value of any Asset''. John Wiley & Sons. Any derivative instrument that is not a contingent claim is called a forward commitment. The prototypical ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Option Pricing
In finance, a price (premium) is paid or received for purchasing or selling options. The calculation of this premium will require sophisticated mathematics. Premium components This price can be split into two components: intrinsic value, and time value (also called "extrinsic value"). Intrinsic value The ''intrinsic value'' is the difference between the underlying spot price and the strike price, to the extent that this is in favor of the option holder. For a call option, the option is in-the-money if the underlying spot price is higher than the strike price; then the intrinsic value is the underlying price minus the strike price. For a put option, the option is in-the-money if the ''strike'' price is higher than the underlying spot price; then the intrinsic value is the strike price minus the underlying spot price. Otherwise the intrinsic value is zero. For example, when a DJI call (bullish/long) option is 18,000 and the underlying DJI Index is priced at $18,050 then there ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Valuation (finance)
In finance, valuation is the process of determining the value of a (potential) investment, asset, or security. Generally, there are three approaches taken, namely discounted cashflow valuation, relative valuation, and contingent claim valuation. Valuations can be done for assets (for example, investments in marketable securities such as companies' shares and related rights, business enterprises, or intangible assets such as patents, data and trademarks) or for liabilities (e.g., bonds issued by a company). Valuation is a subjective exercise, and in fact, the process of valuation itself can also affect the value of the asset in question. Valuations may be needed for various reasons such as investment analysis, capital budgeting, merger and acquisition transactions, financial reporting, taxable events to determine the proper tax liability. In a business valuation context, various techniques are used to determine the (hypothetical) price that a third party would pay for a ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Call Option
In finance, a call option, often simply labeled a "call", is a contract between the buyer and the seller of the call Option (finance), option to exchange a Security (finance), security at a set price. The buyer of the call option has the right, but not the obligation, to buy an agreed quantity of a particular commodity or financial instrument (the underlying) from the seller of the option at or before a certain time (the Expiration (options), expiration date) for a certain price (the strike price). This effectively gives the buyer a Long (finance), ''long'' position in the given asset. The seller (or "writer") is obliged to sell the commodity or financial instrument to the buyer if the buyer so decides. This effectively gives the seller a Short (finance), ''short'' position in the given asset. The buyer pays a fee (called a Insurance, premium) for this right. The term "call" comes from the fact that the owner has the right to "call the stock away" from the seller. Price of opt ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
