Preface
Contents
About the Authors
Chapter 1: Introduction
1.1 Introduction
References
Part I: Corporate Finance
Chapter 2: Capital Structure Theory: Past, Present, Future
2.1 Introduction
2.2 Basic Theories of Capital Structure
2.2.1 A Historical Point of View
2.2.2 The Empirical (Traditional) Approach
2.2.3 The Modigliani-Miller Theory
2.2.3.1 The Modigliani-Miller Theory with Taxes
2.2.3.2 The Modigliani-Miller Theory with Taxes
2.2.4 Modifications of Modigliani-Miller Theory
2.2.4.1 Hamada Model
2.2.4.2 The Cost of Capital Under Risky Debt
2.2.4.3 The Account of Corporate and Individual Taxes (Miller Model)
2.2.4.4 Alternative Expression for WACC
2.2.4.5 The Miles-Ezzell Model Versus the Modigliani-Miller Theory
2.3 Trade-Off Theory
2.3.1 Static Theory
2.3.2 Dynamic Theory
2.3.3 Proof of the Bankruptcy of the Trade-Off Theory
2.4 Accounting for Transaction Costs
2.5 Accounting for Asymmetries of Information
2.6 Signaling Theory
2.7 Pecking Order Theory
2.8 Behavioral Theories
2.8.1 Manager Investment Autonomy
2.8.2 The Equity Market Timing Theory
2.8.3 Information Cascades
2.9 Theories of Conflict of Interests
2.9.1 Theory of Agency Costs
2.9.2 Theory of Corporate Control and Costs Monitoring
2.9.3 Theory of Stakeholders
2.10 BFO Theory
2.10.1 Brusov-Filatova-Orekhova Theorem
2.11 BFO Theory and Modigliani-Miller Theory Under Inflation
2.12 BFO Theory for the Companies Ceased to Exist at the Time Moment n (BFO-2 Theory)
2.13 The Modigliani-Miller Theory with Advance Payments of Tax on Profit
2.14 The Modigliani-Miller Theory with Arbitrary Frequency of Payment of Tax on Profit
2.15 Generalization of the Modigliani-Miller Theory for the Case of Variable Profit
2.16 The Generalization of the Brusov-Filatova-Orekhova Theory for the Case of Payments of Tax on Profit with Arbitrary Freque...
2.17 Benefits of Advance Payments of Tax on Profit: Consideration Within the Brusov-Filatova-Orekhova (BFO) Theory
2.18 Influence of Method and Frequency of Profit Tax Payments on Company Financial Indicators
2.19 The Brusov-Filatova-Orekhova (BFO) Theory with Variable Income
2.20 Qualitatively New Effects in the Theory of Capital Structure
2.20.1 Golden and Silver Ages of the Company
2.20.2 Silver Age of the Company
2.20.3 Anomalous Dependence of the Company´s Equity Value on Leverage
2.21 A Stochastic Extension of the Modigliani-Miller Theory
2.22 Conclusions
References
Chapter 3: Main Theories of Capital Structure
3.1 The Traditional Approach
3.2 Modigliani-Miller Theory
3.2.1 Modigliani-Miller Theory Without Taxes
3.2.2 Modigliani-Miller Theory with Taxes
3.2.3 Main Assumptions of Modigliani-Miller Theory
3.2.4 Modifications of Modigliani-Miller Theory
References
Chapter 4: Modern Theory of Capital Cost and Capital Structure: Brusov-Filatova-Orekhova Theory (BFO Theory)
4.1 Companies with Arbitrary Lifetime. Brusov-Filatova-Orekhova Equation
4.2 Comparison of Modigliani-Miller Results (Perpetuity Company) with Myers Results (1-Year Company) and Brusov-Filatova-Orekh...
4.3 Brusov-Filatova-Orekhova Theorem
4.4 From Modigliani-Miller to General Theory of Capital Cost and Capital Structure
4.5 Conclusions
References
Chapter 5: Bankruptcy of the Famous Trade-Off Theory
5.1 Optimal Capital Structure of the Company
5.2 Absence of the Optimal Capital Structure in Modified Modigliani-Miller Theory (MMM Theory)
5.3 Analysis of the Trade-Off Theory Within the Brusov-Filatova-Orekhova Theory
5.4 The Causes of Absence of the Optimum Capital Structure in Trade-Off Theory
5.5 Conclusion
References
Chapter 6: New Mechanism of Formation of the Company Optimal Capital Structure, Different from Suggested by Trade-off Theory
6.1 Absence of Suggested Mechanism of Formation of the Company Optimal Capital Structure Within Modified Modigliani-Miller The...
6.2 Formation of the Company Optimal Capital Structure Within Brusov-Filatova-Orekhova (BFO Theory)
6.2.1 Decrease of Debt Cost at Exponential Rate
6.3 Simple Model of Proposed Mechanism
6.4 Conclusion
References
Chapter 7: The Global Causes of the Global Financial Crisis
References
Chapter 8: The Role of Taxing and Leverage in Evaluation of Capital Cost and Capitalization of the Company
8.1 The Role of Taxes in Modigliani-Miller Theory
8.2 The Role of Taxes in Brusov-Filatova-Orekhova Theory
8.2.1 Weighted Average Cost of Capital of the Company WACC
8.2.2 Equity Cost ke of the Company
8.2.3 Dependence of WACC and ke on Lifetime of Company
8.3 Conclusions
References
Chapter 9: A Qualitatively New Effect in Corporate Finance: Abnormal Dependence of Equity Cost of Company on Leverage
9.1 Introduction
9.2 Equity Cost in the Modigliani-Miller Theory
9.3 Cost of Equity Capital Within Brusov-Filatova-Orekhova Theory (BFO Theory)
9.3.1 Dependence of Cost of Equity ke on Tax on Profit Rate T at Different Fix Leverage Level L
9.3.2 Dependence of Cost of Equity ke on Leverage Level L (the Share of Debt Capital wd) at Different Fix Tax on Profit Rate T
9.4 Dependence of the Critical Value of Tax on Profit Rate T on Parameters n, k0, kd of the Company
9.5 Practical Value of Effect
9.6 Equity Cost of 1-Year Company
9.7 Conclusions
References
Chapter 10: Inflation in Brusov-Filatova-Orekhova Theory and in Its Perpetuity Limit: Modigliani-Miller Theory
10.1 Introduction
10.2 Accounting of Inflation in Modigliani-Miller Theory Without Taxes
10.3 Accounting of Inflation in Modigliani-Miller Theory with Corporate Taxes
10.4 Accounting of Inflation in Brusov-Filatova-Orekhova Theory with Corporate Taxes
10.4.1 Generalized Brusov-Filatova-Orekhova Theorem
10.5 Generalized Brusov-Filatova-Orekhova Formula Under Existing of Inflation
10.6 Irregular Inflation
10.7 Conclusions
10.8 Inflation Rate for a Few Periods
References
Chapter 11: Benefits of Advance Payments of Tax on Profit: Consideration Within Brusov-Filatova-Orekhova (BFO) Theory
11.1 Introduction
11.2 Modification of the Brusov-Filatova-Orekhova (BFO) Theory for Companies with Frequent Payments of Tax on Income
11.2.1 Calculation of the Tax Shield
11.2.2 Company Value
11.2.3 The Weighted Average Cost of Capital, WACC
11.2.3.1 Calculation of the Equity Cost
11.3 Results
11.3.1 Dependence of the Weighted Average Cost of Capital, WACC, Capital Value, V, Equity Cost, ke, on Leverage Level L for 3-...
11.3.2 Dependence of the Weighted Average Cost of Capital, WACC, Capital Value, V, Equity Cost, ke, on Leverage Level L for 6-...
11.4 Comparison of Results for 3-Year and 6-Year Companies
11.5 Discussion
11.6 Summary and Conclusions
References
Chapter 12: The Generalization of the Brusov-Filatova-Orekhova Theory for the Case of Payments of Tax on Profit with Arbitrary...
12.1 Introduction
12.1.1 Capital Structure of the Company
12.1.2 The Modigliani-Miller Theory
12.2 Some Modifications of Modigliani-Miller Theory
12.2.1 Hamada Model: Accounting Market Risk
12.2.2 The Account of Corporate and Individual Taxes (Miller Model)
12.2.3 More General Case for WACC Formula
12.2.4 Fiscal Pressure, Financial Liquidity, Financial Solvency, and Financial Leverage
12.2.5 Brusov-Filatova-Orekhova (BFO) Theory
12.2.6 Trade-off Theory
12.3 Modification of the Brusov-Filatova-Orekhova (BFO) Theory for Companies with Frequent Payments of Tax on Income
12.3.1 Calculation of the Tax Shield
12.3.2 Derivation of the Modified BFO Formula for Weighted Average Cost of Capital (WACC)
12.3.3 Formulas for Capital Value, V, and Equity Cost, ke
12.4 Results
12.4.1 Dependence of the Weighted Average Cost of Capital, WACC, Capital Value, V, Equity Cost, ke, on Leverage Level L at Dif...
12.4.1.1 Dependence of The Weighted Average Cost of Capital, WACC, on Leverage Level L at Different Frequency of Payment of Ta...
12.4.1.2 Dependence of the Company Value, on Leverage Level L at Different Frequencies of Payment of Tax on Profit p for 3-yea...
12.4.1.3 Dependence of the Equity Cost, ke, on Leverage Level L at Different Frequency of Payment of Tax on Profit p for 3-yea...
12.4.2 Dependence of the Weighted Average Cost of Capital, WACC, Capital Value, V, Equity Cost, ke, on Leverage Level L at Dif...
12.4.2.1 Dependence of The Weighted Average Cost of Capital, WACC, on Leverage Level L at Different Frequency of Payment of Ta...
12.4.2.2 Dependence of the Company Value, V, on Leverage Level L at Different Frequency of Payment of Tax on Profit p for 6-ye...
12.4.2.3 Dependence of the Equity Cost, ke, on Leverage Level L at Different Frequencies of Payment of Tax on Profit p for 6-y...
12.5 The Discussion and Conclusions
References
Chapter 13: Influence of Method and Frequency of Profit Tax Payments on Company Financial Indicators
13.1 Introduction
13.1.1 A Literature Review on the Development of the Capital Cost and Capital Structure Theory
13.2 The Modified Brusov-Filatova-Orekhova (BFO) Theory for the Case of Frequent Advance Profit Tax Payments
13.2.1 The Tax Shield Calculation
13.2.2 Derivation of the Modified BFO Formula for the Weighted Average Cost of Capital (WACC)
13.2.3 Formulae for the Capital Value and Equity Cost
13.3 Results and Discussions
13.3.1 The Impact of the Frequency of Profit Tax Payments on the Dependence of the Weighted Average Cost of Capital, Capital V...
13.3.2 The Impact of the Frequency of Profit Tax Payments on the Dependence of the Weighted Average Cost of Capital, Capital V...
13.4 Conclusions
References
Chapter 14: Generalization of the Brusov-Filatova-Orekhova Theory for the Case of Variable Income
14.1 Introduction
14.1.1 Literature Review
14.1.2 Before the Modigliani and Miller Work
14.1.3 Modigliani-Miller Theory
14.1.3.1 Modigliani-Miller Theory Without Taxes
14.1.3.2 Modigliani-Miller Theory with Taxes
14.1.4 Unification of Capital Asset Pricing Model (CAPM) with Modigliani-Miller Model
14.1.4.1 Miller Model
14.1.5 Brusov-Filatova-Orekhova (BFO) Theory
14.1.6 Alternate WACC Formula
14.1.7 Trade-off Theory
14.1.8 Materials and Methods
14.2 Modification of the BFO Theory for the Case of Companies with Variable Incomes
14.2.1 The Levered Company Value, V
14.2.2 The Unlevered Company Value, V0
14.2.3 The Tax Shield Value
14.3 Results and Discussions
14.3.1 Calculations for Two-Year Company
14.3.1.1 Calculations of Weighted Average Cost of Capital, WACC
14.3.1.2 Calculations of the Discount Rate, WACC-g
14.3.1.3 Calculations of the Company Value, V
14.3.1.4 Calculations of the Equity Cost, ke
14.3.2 Calculations for Four-Year Company
14.3.2.1 Calculations of Weighted Average Cost of Capital, WACC
14.3.2.2 Calculations of the Discount Rate, WACC-g
14.3.2.3 Calculations of the Company Value, V
14.3.2.4 Calculations of the Cost of Equity ke
14.3.3 Comparison with the Theory of Modigliani and Miller with Variable Income
14.4 Conclusions
References
Chapter 15: BFO Theory with Variable Profit in Case of Advance Payments of Tax on Profit
15.1 Introduction
15.1.1 Review of Literature
15.1.2 The Basis of the Traditional Approach (TA)
15.1.3 Modigliani-Miller Theory
15.1.3.1 Modigliani-Miller Theory Without Taxes
15.1.3.2 Modigliani-Miller Theory with Taxes
15.1.4 Unification of Capital Asset Pricing Model (CAPM) with Modigliani-Miller Model
15.1.5 Miller Model
15.1.6 Brusov-Filatova-Orekhova (BFO) Theory
15.1.7 Alternative Expression for WACC
15.1.8 Trade-off Theory
15.2 Modification of the Brusov-Filatova-Orekhova (BFO) Theory to the Case of Companies with Variable Incomes and Advance Paym...
15.2.1 The Financially Dependent Company Value, V
15.2.2 The Value of a Financially Independent Company, V0
15.2.3 The Tax Shield Value
15.3 Results and Discussions
15.3.1 Five-year Company
15.3.1.1 Weighted Average Cost of Capital, WACC
15.3.1.2 Calculations of the Discount Rate, WACC-g
15.3.1.3 Calculations of the Company Value, V
15.3.1.4 Calculations of the Equity Cost, ke
15.3.2 Study the Dependence of Financial Indicators on kd
15.3.2.1 The Weighted Average Cost of Capital, WACC
15.3.2.2 The Discount Rate, WACC-g
15.3.2.3 The Company Value, V
15.3.3 Impact of Company Age, n, on Main Financial Indicators of the Company
15.3.3.1 WACC(L)
15.3.3.2 Discount Rate WACC-g
15.3.3.3 Company Value, V
15.3.3.4 Equity Cost, ke
15.3.3.5 Results Summary
15.4 Conclusions
References
Chapter 16: BFO Theory with Variable Profit: Two Types of Payments of Tax on Profit: Advanced Payments and at the Ends of Peri...
16.1 Introduction
16.1.1 A Literature Review
16.1.1.1 Methods and Materials
16.2 The Brusov-Filatova-Orekhova (BFO) Theory Modification to the Case of Companies with Variable Incomes and Advance Payment...
16.2.1 The Value of a Financially Dependent Company, V
16.2.2 The Value of a Financially Independent Company, V0
16.2.3 The Tax Shield Value, TS
16.3 Results and Discussions
16.3.1 Calculations of the Equity Cost, ke
16.3.2 Study the Dependence of Financial Indicators on kd
16.3.2.1 The Weighted Average Cost of Capital, WACC
16.3.2.2 The Discount Rate, WACC-g
16.3.2.3 The Company Value, V
16.3.3 Impact of Company Age, n, on Main Financial Indicators of the Company
16.3.3.1 WACC(L)
16.3.3.2 Discount Rate WACC-g
16.3.3.3 Company Value, V
16.3.3.4 Equity Cost, ke
16.3.3.5 Results Summary
16.4 Conclusions
References
Part II: Investments
Chapter 17: Investment Models with Debt Repayment at the End of the Project and their Application
17.1 Investment Models
17.2 The Effectiveness of the Investment Project from the Perspective of the Equity Holders Only
17.2.1 With the Division of Credit and Investment Flows
17.3 Without Flows Separation
17.4 Modigliani-Miller Limit (Perpetuity Projects)
17.4.1 With Flows Separation
17.4.2 Without Flows Separation
17.5 The Effectiveness of the Investment Project from the perspective of the Owners of Equity and Debt
17.5.1 With Flows Separation
17.5.2 Without Flows Separation
17.6 Modigliani-Miller Limit
17.6.1 With Flows Separation
17.6.2 Without Flows Separation
References
Chapter 18: Investment Models with Uniform Debt Repayment and their Application
18.1 Investment Models with Uniform Debt Repayment
18.2 The Effectiveness of the Investment Project from the Perspective of the Equity Holders Only
18.2.1 With the Division of Credit and Investment Flows
18.2.2 Without Flows Separation
18.3 The Effectiveness of the Investment Project from the Perspective of the Owners of Equity and Debt
18.3.1 With Flows Separation
18.3.1.1 Projects of Arbitrary (Finite) Duration
18.3.2 Without Flows Separation
18.4 Example of the Application of the Derived Formulas
18.5 Conclusions
References
Chapter 19: The Analysis of the Exploration of Efficiency of Investment Projects of Arbitrary Duration (within Brusov-Filatova...
19.1 The Effectiveness of the Investment Project from the Perspective of the Equity Holders Only
19.1.1 With the Division of Credit and Investment Flows
19.1.2 Without Flows Separation
19.2 The Effectiveness of the Investment Project from the Perspective of the Owners of Equity and Debt
19.2.1 With the Division of Credit and Investment Flows
19.2.2 Without Flows Separation
19.3 The Elaboration of Recommendations on the Capital Structure of Investment of Enterprises, Companies, Taking into Account ...
19.3.1 General Conclusions and Recommendations on the Definition of Capital Structure of Investment of Enterprises
References
Chapter 20: Whether it Is Possible to Increase Taxing and Conserve a Good Investment Climate in the Country?
20.1 Influence of Tax on Profit Rates on the Efficiency of the Investment Projects
20.2 Investment Models
20.3 Borrowings Abroad
20.4 Dependence of NPV on Tax on Profit Rates at Different Leverage Levels
20.5 At a Constant Value of Equity Capital (S = Const)
20.6 Without Flows Separation
20.6.1 At a Constant Value of the Total Invested Capital (I = Const) (Fig. 20.13)
20.6.2 At a Constant Value of Equity Capital (S = Const)
20.7 Conclusions
References
Chapter 21: Whether It Is Possible to Increase the Investment Efficiency, Increasing Tax on Profit Rate? An Abnormal Influence...
21.1 Dependence of NPV on Leverage Level L at Fixed Levels of Tax on Profit Rates t
21.1.1 The Effectiveness of the Investment Project from the Perspective of the Equity Holders Only
21.1.2 The Effectiveness of the Investment Project from the Perspective of the Equity and Debt Holders
21.2 Dependence of NPV on Tax on Profit Rates at Fixed Leverage Levels L
21.2.1 The Effectiveness of the Investment Project from the Perspective of the Equity Holders Only
21.2.2 The Effectiveness of the Investment Project from the Perspective of the Equity and Debt Holders
References
Chapter 22: Optimizing the Investment Structure of the Telecommunication Sector Company
22.1 Introduction
22.2 Investment Analysis and Recommendations for Telecommunication Company ``Nastcom Plus´´
22.2.1 The Dependence of NPV on Investment Capital Structure
22.2.2 The Dependence of NPV on the Equity Capital Value and Coefficient β
22.3 Effects of Taxation on the Optimal Capital Structure of Companies in the Telecommunication Sector
22.4 Conclusions
References
Chapter 23: Innovative Investment Models with Frequent Payments of Tax on Income and of Interest on Debt
23.1 Introduction
23.1.1 The Literature Review
23.1.2 Some Problems Under the Evaluation of the Effectiveness of the Investment Projects
23.1.3 The Discount Rates
23.1.4 The Structure of the Paper
23.2 The Effectiveness of the Investment Project from the Perspective of the Equity Holders Only
23.2.1 With Flow Separation
23.2.2 Without Flow Separation
23.3 The Effectiveness of the Investment Project from the Perspective of the Owners of Equity and Debt
23.3.1 With Flow Separation
23.3.2 Without Flow Separation
23.4 Discount Rates
23.5 Results and Discussions
23.5.1 Numerical Calculation of the Discount Rates
23.5.1.1 The Long-Term Investment Projects
23.5.1.2 The Arbitrary Duration Investment Projects
23.5.2 The Effectiveness of the Long-Term Investment Project from the Perspective of the Owners of Equity Capital
23.5.3 The Effectiveness of the Long-Term Investment Project from the Perspective of the Owners of Equity and Debt
23.5.4 The Effectiveness of the Arbitrary Duration Investment Projects from the Perspective of the Owners of Equity Capital
23.5.5 The Effectiveness of the Arbitrary Duration Investment Project from the Perspective of the Owners of Equity and Debt
23.5.6 Discussions
23.6 Conclusions
References
Chapter 24: The Role of the Central Bank and Commercial Banks in Creating and Maintaining a Favorable Investment Climate in th...
24.1 Introduction
24.2 Investment Models with Debt Repayment at the End of the Project
24.2.1 The Effectiveness of the Investment Project from the Perspective of the Equity Holders Only (Without Flows Separation)
24.2.1.1 Modigliani-Miller Limit (Long-Term (Perpetuity) Projects
24.3 Modigliani-Miller Limit (Long-Term (Perpetuity) Projects)
24.3.1 The Dependence of the Efficiency of Investments NPV on the Level of Debt Financing L for the Values of Equity Costs k0 ...
24.3.2 The Dependence of the Efficiency of Investments NPV on the Level of Debt Financing L for the Value of Equity Costs k0 =...
24.4 Projects of Finite (Arbitrary) Duration
24.4.1 The Dependence of the Efficiency of Investments NPV on the Level of Debt Financing L for the Values of Equity Costs k0 ...
24.4.2 The Dependence of the Efficiency of Investments NPV on the Level of Debt Financing L for the Values of Equity Costs k0 ...
24.5 The Dependence of the Net Present Value, NPV, on the Leverage Level l for Projects of Different Durations
24.6 Conclusions
References
Chapter 25: The Golden Age of the Company (Three Colors of Company´s Time)
25.1 Dependence of WACC on the Age of the Company n at Different Leverage Levels
25.2 Dependence of WACC on the Age of the Company n at Different Values of Capital Costs (Equity, k0, and Debt, kd) and Fixed ...
25.3 Dependence of WACC on the Age of the Company n at Different Values of Debt Capital Cost, kd, and Fixed Equity Cost, k0, a...
25.4 Dependence of WACC on the Age of the Company n at Different Values of Equity Cost, k0, and Fixed Debt Capital Cost, kd, a...
25.5 Dependence of WACC on the Age of the Company n at High Values of Capital Cost (Equity, k0, and Debt, kd) and High Lifetim...
25.6 Further Investigation of Effect
25.7 Conclusions
References
Chapter 26: A ``Golden Age´´ of the Companies: Conditions of Its Existence
26.1 Introduction
26.2 Companies Without the ``Golden Age´´ (Large Difference Between k0 and kd Costs)
26.2.1 Dependence of Weighted Average Cost of Capital, WACC, on the Company Age n at Different Leverage Levels
26.3 Companies with the ``Golden Age´´ (Small Difference Between k0 and kd Costs)
26.4 Companies with Abnormal ``Golden Age´´ (Intermediate Difference Between k0 and kd Costs)
26.5 Comparing with Results from Previous Chapter
26.5.1 Under Change of the Debt Capital Cost, kd
26.5.2 Under Change of the Equity Capital Cost, k0
26.6 Conclusions
References
Chapter 27: New Meaningful Effects in Modern Capital Structure Theory
27.1 Introduction
27.2 Comparision of Modigliani-Miller (MM) and Brusov-Filatova-Orekhova (BFO) Results
27.2.1 The Traditional Approach
27.2.2 Modigliani-Miller Theory
27.3 Comparision of Modigliani-Miller Results (Perpetuity Company) with Myers Results (One Year Company) and Brusov-Filatova-O...
27.4 Bankruptcy of the Famous Trade-off Theory
27.5 The Qualitatively New Effect in Corporate Finance
27.5.1 Perpetuity Modigliani-Miller Limit
27.5.2 BFO Theory
27.6 Mechanism of Formation of the Company Optimal Capital Structure
27.7 ``A Golden Age´´ of the Company
27.8 Inflation in MM and BFO Theories
27.9 Effects, Connected with Tax Shields, Taxes and Leverage
27.10 Effects, Connected with the Influence of Tax on Profit Rate on Effectiveness of Investment Projects
27.11 Influence of Growth of Tax on Profit Rate
27.12 New Approach to Ratings
References
Part III: Ratings and Rating Methodologies of Non-financial Issuers
Chapter 28: Rating: New Approach
28.1 Introduction
28.2 The Closeness of the Rating Agencies
28.3 The Use of Discounting in the Rating
28.4 Incorporation of Parameters, Using in Ratings, into Perpetuity Limit of Modern Theory of Capital Structure by Brusov-Fila...
28.5 Models
28.5.1 One-Period Model
28.5.2 Multi-Period Model
28.6 Theory of Incorporation of Parameters, Using in Ratings, into Perpetuity Limit of Modern Theory of Capital Structure by B...
28.6.1 Coverage Ratios
28.6.1.1 Coverage Ratios of Debt
28.6.1.2 Coverage Ratios of Interest on the Credit
28.6.1.3 Coverage Ratios of Debt and Interest on the Credit (New Ratios)
28.6.2 More Detailed Consideration
28.6.3 Leverage Ratios
28.6.3.1 Leverage Ratios for Debt
28.6.3.2 Leverage Ratios for Interest on Credit
28.6.3.3 Leverage Ratios for Debt and Interest on Credit
28.7 Equity Cost
28.8 How to Evaluate the Discount Rate?
28.8.1 Using One Ratio
28.8.2 Using a Few Ratios
28.9 Influence of Leverage Level
28.9.1 The Dependence of Equity Cost ke on Leverage Level at Two Coverage Ratio Values ij = 1 and ij = 2
28.10 The Dependence of Equity Cost ke on Leverage Level at Two Leverage Ratio Values lj = 1 and lj = 2
28.11 Conclusion
References
Chapter 29: Rating Methodology: New Look and New Horizons
29.1 Introduction
29.2 The Analysis of Methodological and Systemic Deficiencies in the Existing Credit Rating of Non-financial Issuers
29.2.1 The Closeness of the Rating Agencies
29.2.2 Discounting
29.2.3 Dividend Policy of the Company
29.2.4 Leverage Level
29.2.5 Taxation
29.2.6 Account of the Industrial Specifics of the Issuer
29.2.7 Neglect of Taking into Account the Particularities of the Issuer
29.2.8 Financial Ratios
29.3 Modification of the BFO Theory for Companies and Corporations of Arbitrary Age for Purposes of Ranking
29.4 Coverage Ratios
29.4.1 Coverage Ratios of Debt
29.4.2 The Coverage Ratio on Interest on the Credit
29.4.3 Coverage Ratios of Debt and Interest on the Credit (New Ratios)
29.4.4 All Three Coverage Ratios Together
29.5 Coverage Ratios (Different Capital Cost Values)
29.5.1 Coverage Ratios of Debt
29.5.2 The Coverage Ratio on Interest on the Credit
29.5.3 Coverage Ratios of Debt and Interest on the Credit (New Ratios)
29.5.4 Analysis and Conclusions
29.6 Leverage Ratios
29.6.1 Leverage Ratios for Debt
29.6.2 Leverage Ratios for Interest on Credit
29.7 Leverage Ratios (Different Capital Costs)
29.7.1 Leverage Ratios for Debt
29.7.2 Leverage Ratios for Interests on Credit
29.7.3 Leverage Ratios for Debt and Interests on Credit
29.7.4 Analysis and Conclusions
29.8 Conclusions
References
Chapter 30: Application of the Modigliani-Miller Theory, Modified for the Case of Advance Payments of Tax on Profit, in Rating...
30.1 Introduction
30.2 Modified Modigliani-Miller Theory
30.3 Application of Modified Modigliani-Miller Theory for Rating Needs
30.3.1 Coverage Ratios
30.3.1.1 Coverage Ratios of Debt
30.3.1.2 Coverage Ratios of Interest on the Credit
30.3.1.3 Coverage Ratios of Debt and Interest on the Credit
30.3.2 Dependence of WACC on Leverage Ratios of Debt in ``Classical´´ Modigliani-Miller Theory (MM Theory) and Modified Modigl...
30.3.3 Leverage Ratios
30.3.3.1 Leverage Ratios for Debt
30.3.3.2 Leverage Ratios for Interest on Credit
30.3.3.3 Leverage Ratios for Debt and Interest on Credit
30.3.3.4 Dependence of WACC on Leverage Ratios of Debt in ``Classical´´ Modigliani-Miller Theory (MM Theory) and Modified Modi...
30.4 Discussions
References
Part IV: Ratings and Rating Methodologies of the Investment Projects
Chapter 31: Ratings of the Investment Projects of Arbitrary Durations: New Methodology
31.1 Introduction
31.2 Investment Models
31.2.1 The Effectiveness of the Investment Project from the Perspective of the Equity Holders Only (Without Flows Separation)
31.3 Incorporation of Financial Coefficients, Using in Project Rating into Modern Investment Models, Describing the Investment...
31.3.1 Coverage Ratios
31.3.1.1 Coverage Ratios of Debt
31.3.1.2 Coverage Ratios of Interest on the Credit
31.3.1.3 Coverage Ratios of Debt and Interest on the Credit
31.3.2 Leverage Ratios
31.3.2.1 Leverage Ratios for Debt
31.3.2.2 Leverage Ratios for Interest on Credit
31.3.2.3 Leverage Ratios for Debt and Interest on Credit
31.4 Results and Analysis
31.4.1 Dependence of NPV/D on Coverage Ratios
31.4.1.1 The Dependence of NPV on Coverage Ratio on Debt i1
31.4.1.2 The Dependence of NPV on Leverage Ratio on Debt l1
31.4.1.3 The Dependence of NPV on Coverage Ratio on Debt i1 at Different Values of kd
31.4.1.4 The Dependence of NPV/NOI on Leverage Ratio on Debt l1 at Different Values of kd
31.5 Conclusion
References
Chapter 32: Ratings of Investment Projects of Arbitrary Duration with a Uniform Debt Repayment: A New Approach
32.1 Introduction
32.2 Incorporation of Financial Ratios Used in Project Rating into Modern Investment Models with Uniform Repayment of Debt
32.2.1 Coverage Ratios
32.2.1.1 Coverage Ratios of Debt
32.2.1.2 Coverage Ratios of Interest on the Credit
32.2.1.3 Coverage Ratios of Debt and Interest on the Credit (New Parameter)
32.2.2 Leverage Ratios
32.2.2.1 Leverage Ratios for Debt
32.2.2.2 Leverage Ratios for Interest on Credit
32.2.2.3 Leverage Ratios for Debt and Interest on Credit
32.2.3 Perpetuity Limit
32.2.4 The Study of the Dependence of the Net Present Value of the Project, NPV, on Rating Parameters
32.2.4.1 Investigation of the Dependence of the Net Present Value of the Project, NPV (in Units of Debt D) on Coverage Ratios
32.2.4.2 Study of the Dependence of the Net Present Value of the Project NPV (in Units of Net Operating Income NOI) on Leverag...
32.3 Conclusions
References
Chapter 33: Conclusions
References
