A simple counterexample shows that the widely used WACC approach to value leverage firms developed by Miles and Ezzell can create an arbitrage opportunity. The only consequence to be drawn is that their WACC approach cannot be applied under the circumstances assumed by Miles and Ezzell. We show how the WACC has to be modified in order to obtain proper results. We develop a theory in continuous ...

The optimal outcome of a firm in bankruptcy is to liquidate if its asset value is greater than its value as a going concern or, alternatively, to reorganize if it is worth more as a going concern. In this study, we identify firm asset and liability characteristics which may determine the likelihood of a firm successfully emerging from bankruptcy. We find two key factors influencing the success ...

Providing such assistance has been the dominant strategy for combating poverty in the United States for many years. Yet it has been remarkably unsuccessful. There is no state where a welfare check will raise a four-person family above the g o v e rn m e n t ’s official poverty line ($18,104 in 2001). Add in the fact that the official poverty lineis a pretty stingy standard that has not kept pac...

In the era of rapid growth and high competition, a company must possess an information/knowledge advantage in order to hold the upper hand in the industry. Therefore, the company has to continuously monitor its competitors in order to get enough information and convert the information into competitive knowledge. Although information technology has been used in many areas and has many successful...

We develop a theory of money and credit as competing payment instruments, then put it to work in applications. Buyers can use cash or credit, with the former (latter) subject to the inflation tax (transaction costs). Frictions making the choice of payment method interesting also imply equilibrium price dispersion, and together these deliver closed-form solutions for money demand. The model can ...

A house purchase typically requires a deposit (or down-payment) and so a significant amount of cash. This paper considers the empirical implications of this borrowing constraint for the housing market. It shows that, at the aggregate level, models of the housing market that incorporate the constraint are consistent with the following stylised facts: i) a positive correlation between house price...

Due to their functionality, stored value purses based on smart card technology are prominent candidates for being the dominant medium of exchange for micropayments. However, the overall prospects of these payment systems are yet ambiguous, both from the perspective of practice and monetary theory, because their potential to substitute for cash is still largely unknown. As a contribution to the ...

Stock Liquidity and Corporate Cash Holdings: Feedback and the Cash as Ammunition Hypothesis We advance the feedback/cash as ammunition hypothesis, namely that firms hold cash to address feedback from stock prices to cash flows and growth opportunities. Firms with more liquid stocks are expected to hold more cash, the opposite of the prediction from a standard information asymmetry perspective o...