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2013 | Buch

Finance – Fundamental Problems and Solutions

verfasst von: Zhiqiang Zhang

Verlag: Springer Berlin Heidelberg

Buchreihe : SpringerBriefs in Business

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SUCHEN

Über dieses Buch

As indicated by the title, this book focuses on fundamental problems in finance: a logical dilemma in valuation, stock valuation methods/models, risk valuation, and optimal capital structure. It presents an innovative approach to logic and quantitative reasoning (without advanced mathematics) that delivers valuable results ---- convincing solutions to these problems. Readers in finance will definitely be interested in these solutions as well as the methods. In fact, these fundamental problems are essential in the field of finance, and they have remained unsolved (or partly unsolved) for decades. The solutions offered in this book are all sound in theory and feasible in practice, and will hopefully benefit both theoretic al research and practical decision-making.

Inhaltsverzeichnis

Frontmatter
Chapter 1. Finance and its Fundamental Problems
Abstract
There are currently numerous misunderstandings about finance. Those misunderstandings decay our ability and judgment on financial research and financial theory, and are the important reasons why most of the fundamental financial problems remain unsolved after 60 years’ intensive research. This chapter tries to rectify some misleading concepts via exploring the relationships between financial theory and business practice as well as the relationships between financial theory and other academic theories.
Zhiqiang Zhang
Chapter 2. Does a Positive Perpetual Growth Rate Exist?
Abstract
This chapter explores a common variable, perpetual grow rate, in financial or valuation models and reveals that it is not sure to be positive or negative, which is referred to as a growth paradox. Based on Moody’s default rate data, this chapter further reveals some insights related to this growth paradox and concludes that finance as a science is just on its initial stage, which is similar to Astronomy in the time of Nicolaus Copernicus (1473-1543).
Zhiqiang Zhang
Chapter 3. Valuation Based on Required Payback Period
Abstract
This chapter finds a new valuation method competitive to the DCF method and further derives a series of valuation models based on the new method. These models solve the key valuation issues in absolute valuation ---- can avoid the ZZ growth paradox trouble, and are flexible enough to value individual stocks in stable sectors and in high-growth sectors. These models solve as well the key valuation issues in relative valuation ---- can find the theoretical valuation ratios (P/E, P/B and P/S) effectively, and measure the bubbles of the individual stocks and the overall market. This chapter finally indicates the vast potentials of this brand new valuation method by demonstrating some basic applications.
Zhiqiang Zhang
Chapter 4. Certainty Equivalent, Risk Premium and Asset Pricing
Abstract
This chapter explores the methods to determine a discount rate. After examining the prevailing alternatives to determine a discount rate, the bad news is: none of them is correct in theory. This implies that we cannot incorporate (asset, project, etc.) risk into valuation effectively. Based on the option pricing model, the chapter finds two ways to solve the problem of incorporate risk: via certainty equivalent and via the risk-adjusted discount rate. Correspondingly, a series of models (the ZZ models of certainty equivalent and its coefficient, the ZZ risk equivalent and its coefficient, the ZZ risk premium model and the ZZ CAPM) are derived. Both the forms and the variables of these models are derived via strict logic processes rather than chosen subjectively, which implies these models are sound in theory and versatile in practice.
Zhiqiang Zhang
Chapter 5. Tax Shield, Bankruptcy Cost and Optimal Capital Structure
Abstract
This chapter tries to solve the problem of optimal capital structure. After redefining the concepts of tax shield and bankruptcy cost, based on the MM models and Black-Scholes model, this chapter derives the ZZ tax shield model and the ZZ bankruptcy cost model, and finally solves the problem of optimal capital structure by deriving the ZZ optimal leverage model or the ZZ optimal capital structure model. The ZZ leverage model reveals that there is indeed an optimal debt ratio for every firm on certain time, but the value-added from optimizing its debt ratio is very limited. Just as other ZZ model series, the forms and the variables of the ZZ model series on leverage are also derived via strict logic processes rather than chosen subjectively. Hence, the ZZ model series on leverage can be easily extended to accommodate various decision situations and more conditional factors, such as abnormal growth, bankrupt expectancy, debt guarantee, transaction cost, personal income tax, etc. and can as well be used to explain better most of the other long-lasting capital structure puzzles.
Zhiqiang Zhang
Metadaten
Titel
Finance – Fundamental Problems and Solutions
verfasst von
Zhiqiang Zhang
Copyright-Jahr
2013
Verlag
Springer Berlin Heidelberg
Electronic ISBN
978-3-642-30512-2
Print ISBN
978-3-642-30511-5
DOI
https://doi.org/10.1007/978-3-642-30512-2