Premium Essay

Cap Rate Principles

In: English and Literature

Submitted By kh113240a
Words 1116
Pages 5
NEVADA DEPARTMENT OF TAXATION Capitalization Rate Study Principles of Development Calendar Year 2012 For the 2014-2015 Secured & 2013-2014 Unsecured Tax Year Valuation In the Department’s capitalization rate study, four capitalization criteria are considered: 1.) 2.) 3.) 4.) The estimate of the equity cost of capital must comport with common sense. The company’s equity risk premium should be reasonably stable over short periods of time. The estimate of the cost of equity should apply for the long term. The estimation procedure must be sufficiently straightforward so that it can be easily understood, applied, and even adjusted by educated practitioners.

“The duration of the cost of equity should approximately match the duration of the dividend stream.” “Estimating the Cost of Equity Capital” (Bradford Cornell, John I. Hirshleifer, and Elizabeth P. James, Contemporary Finance Digest, Vol. 1, Number 1, Autumn, 1997). “With the respect to the oldest and most established model, the capital asset pricing model (CAPM), the academic consensus, to the extent that there is one, is that it does not work. Furthermore, there is no widely accepted alternative that does. (Cornell, p. 7) The Department’s capitalization rate model uses comparables, and: 1.) It provides development of “pure plays*”. 2.) It uses comparables to reduce measurement error, however, there is a trade-off between the reduced measurement error that averaging makes possible and the potent bias that it introduces. “There is no unambiguous way to identify comparability.” 3.) Because of the impact of diversification, averaging reduces the short-term variation in the estimated cost of equity. From the standpoint of regulatory agencies, which must set policies based on estimates of the cost of capital, this increased stability is a major benefit.” (Cornell, p. 9). “The fact that the target company is not a “pure

Similar Documents

Free Essay

Use of Derivatives in Risk Management

...are poor governance and tone at the top, reckless risk taking, inability to implement enterprise risk management, nonexistence, ineffective or inefficient risk assessment, falling prey to Herd Mentality, misunderstanding the mindset of “if you can’t measure it, you can’t manage it”, accepting a lack of transparency in high-risk areas, nit integrating risk management with strategy-setting and performance management, ignoring the dysfunctionalities and blind spots of the organizations culture, and not involving the board in a timely manner (Beaumier, DeLoach). The derivatives that are used for risk management are interest rate derivatives such as interest rate swaps, interest rate caps, basic swaps, and rate lock (Kelly). All companies should have a policy that states derivatives can only be used for risk management purposes and not for speculating interest rate movements (Kelly). Derivatives used for risk management can be a good thing and can also be a risky problem if someone is not paying attention to what is happening in the company. When a company puts into action a form of derivatives it is usually to protect the company, but this doesn’t always protect a company, it could cost more than had they paid everything down the way they’re contract was written. Often times a company will make poor judgments and are focused on the short term of a...

Words: 1733 - Pages: 7

Premium Essay

Arundel

...as to which stock the company should select based on the formulations. The company’s growth and profit continued to grow with their academic approaches. The company’s management never set the goal to maximize assets. DFA based their approach on academic research and skilled traders. This create a essential formula for the company to create a list of possible investments that fit within the company’s ideal portfolio. DFA used a strategy to decrease the costs between the client and DFA as well as create value. DFA additionally used a value proposition of DFA by using the academic research to create specialized portfolios focusing on the small cap companies (small cap = 300 mil- 2 bill range). This investment approach focused on the Fama and French model. Their research demonstrated the small cap companies tended to outperform the large cap companies.   DFA also added trading capabilities to increase variety among the competitive market while decreasing transaction costs. Passive Approach - Pros the company created low operating expenses, no initial decision making from managers or the investors. Relied on the fundamentals of the Fama and French Model.         Cons the company managers do not actively participate with decisions, performance measures are set by the model and therefore does not include trending or forecasting of the stock variety types. Ex. Technology boom 2. What are the Fama-French findings? Do they make sense? Should we...

Words: 3480 - Pages: 14

Premium Essay

Payday Loans

...lobbyists have also come into question. The overall question to be answered is if payday loans are good for this country. II. What are Payday Loans? Payday loans are defined on Investopedia as a short-term loan with a small borrowing amount and a high rate of interest. The way it works is the borrower writes a post-dated check for the borrowing amount plus a fee for immediate cash. The lender keeps the check until the agreed date which is normally the borrower’s next payday. These loans are also commonly called cash advance loans or check advance loans. (Investopedia) These are attractive to lower income community because the loans offer them money right away before they earn it. The feeling of having physical cash in their hands makes them confident in themselves. This system is great if you can pay the debt off quickly but if you take just a small amount of time to pay the loan the debt can pile up. This is because these loans have a fee applied which pushes the total higher than the payday check combined with a very high rate of interest. The fee is typically $17.50 per $100 for seven days but this then can becomes 900% on an annualized basis. The problem with this is that the fee adds onto the original principle which is based on the borrower’s payday check. This is a problem because the loan is made to be paid in...

Words: 3266 - Pages: 14

Premium Essay

European Economic Poicy Sum Up

...European Economic Policies 1. THE MULTIPLE DIMENSIONS OF AN ENLARGED EUROPE 1.1 THE HISTORICAL DIMENSION Many unprecedented achievements characterize the Europe we see today; for the first time since Charlemagneʼs Holy Roman Empire in the 9th century in the ninth century, most of the European continent (400 million citizens) is again united and in peace. For the first time (at least since the last century) a set of countries have autonomously decided to relinquish to a supranational authority the control of one of the key symbols of a nation, its currency, without renouncing their identity or independence (along with numerous innovations). All this in less than 60 years. Historically, a period of war in Europe has ended with one or more treaty (e.g. 30 years war → Westfalia, Napoleonic war → Vienna Congress, WW1 → Versailles) The end of WW2 produced a series of treaties which, among other things (UN), laid down the founding pillars of the modern European Union The First 40 years (1950 – 89) Its acknowledged that the start of the European integration can be identified in the “Schuman declaration” a speech by French foreign minister in 1950. He proposed that France and Germany and other nations wishing to join, pool their coal and steel resources. It was an opening of credit to Germany (only 5 years after the first tank left Paris) and it implicitly recognized the new world order with france and germany allied with the US. It was also a security measure for France with respect to Germany...

Words: 15394 - Pages: 62

Premium Essay

Gm Case

...modify GM’s interest rate exposure, and how. If he did nothing, it would insulate GM’s cash flows fully from any interest rate exposure if they locked in at a rate of 7.63% plus transaction costs. However, they would not be able to lower the cost of debt in the event that interest rates declined. If he went with Swaps, they would use the current 6-month LIBOR rate of 4.31%, which was likely never to go below 4%, making them unsuitable for insulating GM’s cash flows. The option on treasury notes would flatten the long-term yield curve, and the long-term yield rate was to remain high above the current level. Price at maturity would operate below the bull spread making this option also not suitable for GM’s interest rate exposure. If GM opted to do benchmark caps, selling a cap with an exercise price of 10% would meet GM’s objective about 65% of the time, however there is a huge risk of unlimited losses at interest rates above 10%. Still, this is not a bad option. Swaptions are another option that isn’t terrible for GM. This option protects GM pretty well because if interest rates are high gm would be paying higher floating rates, however they’d be offset by the premium received for selling the option. If interest rates were low, the swaption would not be exercised, and GM would again be paying the fixed rate obligation, but lowered costs of borrowing by the amount of the premium that was paid. However, t here would be unlimited losses if interest rates rise above 9.4% for...

Words: 378 - Pages: 2

Premium Essay

Mba Student

...Risk and Insurance in International Trade AMB 302 ACeL Amity University Risk refers to a situation where outcome are uncertain. In other words risk occurs whenever there is a variation in the actual outcome and expected value. In Business if there is a variation between the actual and the expected value, business suffers a loss, therefore the term risk is also used to describe the expected losses or the variation from the actual outcome. Course Objectives: The course aims at making the students conversant with risk of cross border business (Trade, Investments and Long Term Projects) and the techniques available for mitigating those risks. The role of Insurers and the products and services offered by them would be gone in detail to equip the students with decisions making tools. Learning Outcomes: At the end of the course, the student will be able to: understand the concept of risk in business management learn various techniques available to assess and mitigate those risks develop strategic alternatives evaluate different kinds of risks and their impact on different areas Table of Contents Course Objectives: ........................................................................................................................................ 2 Learning Outcomes: ...................................................................................................................................... 2 Chapter 1: Concept of Risk ................................

Words: 11816 - Pages: 48

Premium Essay

“Incentive Regulation: Earnings Sharings, Price Caps, Yardstick Regulation”

...Angewandte Mikro II: Regulations 5th semester Topic Nr.9: “Incentive Regulation: Earnings Sharings, Price Caps, Yardstick Regulation” Introduction: The following work will shortly outline and explain the principle problem of natural monopolies and will then examine different practical solution(s approaches). I will introduce the three closely connected approaches: Earnings sharings regulation, price cap regulation and yardstick regulation, as well as the rate-of-return regulation as the foundation of the former two. In addition to that I will shortly discuss strengths and weaknesses of these approaches and their practical relevance. In that regard I will try to explain why the rather minimalistic price cap approach prevailed against the former, more comprehensive approaches. When a monopoly is able to control its respective market or branch and when it is not forced by the government or other institutions, to include the overall welfare in its productiondecisions, it normally sets price above the economic efficient or pareto efficient price. Thereby it maximizes its own profit at the expense of the overall welfare and the consumers: Thus (unregulated) monopolies usually result in suboptimal distribution of earnings, and welfare losses. Pareto optimal market clearing generally only occurs on a competitive market. Therefore government usually fights monopolies and oligopolies with regulatory organizations like for example antitrust offices, to grant competition on all markets...

Words: 2671 - Pages: 11

Premium Essay

The Difficulty of Eu Policy Reform on the Example of Cap and Regional Policy

...reformed further. This is due to the fact that these reforms concern mainly the form and not so much the content. The seven objectives of the regional policy have been replaced by three objectives in the 2000-2006 budgetary perspective, which have themselves been converted into three principles for the 2007-2013 period but it did not leqd to any revolutionary change. The CAP has been reformed in 1984, 1988, 1992, 1999, and 2003, but the principle of protecting agriculture from market forces remained intact. Scholars, especially economists, often criticise this inertia claiming that real reforms are necessary to avoid huge economic costs and to ensure a long-term development. Why is it so difficult to reform EU policies? What are the factors encouraging these reforms and those leading to their lack? We have chosen the Common Agricultural Policy (CAP) and the regional policy to tackle this question because they seem to be the policies which face the most difficulties to be reformed and because they represent together 80% of the EU budget which means that the reallocation of their costs would enable a greater dynamism of the Union. The first part, about the CAP, will be longer because the CAP is the example par excellence...

Words: 5528 - Pages: 23

Premium Essay

Budget

...STUDY NOTES FOR GFOA BUDGETING EXAM A. SOURCE: LOCAL GOVERNMENT FINANCE – CONCEPTS & PRACTICES Chapter 4 – Operating Budgets: A budget can be a process, a document, an accounting ledger, a plan, or a system. Local gov’t budgeting process unique – product of geographical, historical, economic, political and social factors peculiar to that jurisdiction. Budgeting is a unified series of steps to line and implement four functions: ❑ policy development – as policy instrument, CEO and legislative body need to articulate the goals, objectives and strategies that underline the budget – the flip side of proposing policy changes is accountability ❑ financial planning – includes gov’t financial condition; current/past-year trend financial act. by dept or prog; formal revenue est; look to the future to anticipate events/conditions; ensure debt service remains under control (while debt service receives first draw on municipal exp, financial plan set a rational debt service level for multi-year period ❑ service/operations planning – blueprint that governs the amount of service provided ❑ communications – way for decision makers to communicate changes in priorities, rationale for decisions and changes to vision in the future The final step in securing a framework w/in w/c the needs of policy setting, financial planning, service planning and communications can work is the development of quantitative performance measures. Environment/actors dictate the extent...

Words: 9179 - Pages: 37

Free Essay

Hello Project

...Chap 4: Thảo luận trường hợp : Các đầu đạn cáp thử lưỡng nan Đó là buổi sáng thứ hai tại nhà máy lắp ráp cáp chia Bryson của Tổng công ty . Stanton Wong, giám sát chất lượng , đang lo lắng tất cả các ngày cuối tuần về một chỉ thị ông đã nhận được từ ông chủ của mình trước khi rời khỏi công việc vào thứ sáu. Harry Jackson , người quản lý nhà máy và một phó chủ tịch hoạt động, đã nói với Stanton rõ ràng để bỏ qua các khuyết tật trong một loạt cáp ép họ đã sản xuất cho một khách hàng lớn , một nhà thầu quân sự. Bây giờ, Stanton đã tự hỏi nếu bất cứ điều gì anh ta nên nói hay làm . Tổng công ty Bryson là tập đoàn lớn đứng đầu là một Giám đốc điều hành tích cực những người đã thành lập một hồ sơ theo dõi việc mua và quay xung quanh các công ty sản xuất có hiệu suất thấp . Harry Jackson đã được gửi đến các nhà máy cáp ngay sau khi nó đã được mua lại , và ông đã làm cho tiến triển giải cứu những gì đã từng là một hoạt động bên lề . Từ trong nhà máy là doanh nghiệp hài lòng với tiến bộ của mình . Harry chạy nhà máy như một nhà độc tài , kiểm soát gần như tuyệt đối , và đảm bảo rằng tất cả mọi người bên trong và bên ngoài tổ chức biết điều đó. Harry sẽ đe dọa trực tiếp báo cáo của mình, la hét vào họ và xúc phạm chúng ở khiêu khích nhất . Ông quấy rối nhiều phụ nữ trẻ trong văn phòng và đã có quan hệ với một trong những nhà quản lý tài khoản bán hàng. Kỷ niệm hai năm Stanton trong công việc vừa qua . Ông hài lòng với tiến bộ của mình . Ông cảm thấy được tôn trọng bởi các công nhân...

Words: 2941 - Pages: 12

Free Essay

Asdasda

...been a leading developer of the technology enabling high speed data extensions of 3G networks and orthogonal frequency division multiple access (OFDMA)-based 4G systems and standards. As a result, Qualcomm owns an extremely valuable patent portfolio that includes patents that are essential, and others that are commercially useful, to all commercial wireless standards based upon CDMA and OFDMA-based systems and standards currently under development. Qualcomm has had a long standing policy of broadly offering to license its standards essential patents for CDMA-based telecommunications standards on terms and conditions that are fair, reasonable, and free from unfair discrimination (FRAND), subject to reciprocity. FRAND is a well-established principle that appropriately balances the interests of patent holders to obtain a fair return on their innovations and those of implementers to obtain access to such innovations through good faith bilateral negotiations of licensing terms and conditions. FRAND embodies a flexible approach that allows individual licensors and licensees to negotiate the terms and conditions that are best suited to address their respective commercial objectives, and values standards essential patents through arms-length negotiations. Contrary to recent claims by a small number of manufacturers, FRAND does not, and never has, prescribed formulas for imposing...

Words: 1173 - Pages: 5

Premium Essay

Eco 365

...ECO/365 Principles of Microeconomics Professor Alex Gialanella December 9, 2013 Good APA compliant cover In this paper I am going discuss the simulation I viewed in Week 2, which is about a city called Atlantis. It is a well maintained and has everything to offer its residents/tenants a decent number of parks, close to highways, clean litter free sidewalks and a low crime rate. The GoodLife Management is the property management firm that handles seven apartment complexes in the city of Atlantis. They have over 2,000 two-bedroom apartments and only a 28% vacancy rate, it’s very essential to use the supply and demand curve to determine the equilibrium in the market. It is also important to understand movements along the shift of the demand and the supply curves to determine how the equilibrium is established after the shift in curves. Supply and Demand are the most used words in the world of economics today, according to Colander , D. (2010). Supply and demand is a critical part of microeconomic and macroeconomics and it assist in determining the economy. This is an excellent, clear intro – good level setting and use of reference As for the principles of microeconomic shown in the simulation is supply and demand. In the simulation they wanted to lower the cost of rent in order to lower the percentage of vacant apartments to 15%. This would raise the revenue for the management firm, at one point the employment rate, population and housing demand...

Words: 1067 - Pages: 5

Premium Essay

Liquidity

...Basel Committee on Banking Supervision Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools January 2013 This publication is available on the BIS website (www.bis.org). © Bank for International Settlements 2013. All rights reserved. Brief excerpts may be reproduced or translated provided the source is cited. ISBN 92-9131- 912-0 (print) ISBN 92-9197- 912-0 (online) Contents Introduction ............................................................................................................................ 1 Part 1: The Liquidity Coverage Ratio ..................................................................................... 4 I. Objective of the LCR and use of HQLA......................................................................... 4 II. Definition of the LCR ..................................................................................................... 6 A. Stock of HQLA ..................................................................................................... 7 1. 2. Operational requirements ........................................................................... 9 3. Diversification of the stock of HQLA.......................................................... 11 4. B. Characteristics of HQLA ............................................................................. 7 Definition of HQLA .................................................................................... 11 Total net cash outflows...

Words: 33889 - Pages: 136

Premium Essay

Finance Manager

...County of Fairfax, Virginia Ten Principles of Sound Financial Management April 30, 2007 1. Planning Policy. The planning system in the County will continue as a dynamic process, which is synchronized with the capital improvement program, capital budget and operating budget. The County’s land use plans shall not be allowed to become static. There will continue to be periodic reviews of the plans at least every five years. Small area plans shall not be modified without consideration of contiguous plans. The Capital Improvement Program will be structured to implement plans for new and expanded capital facilities as contained in the County’s Comprehensive Plan and other facility plans. The Capital Improvement Program will also include support for periodic reinvestment in aging capital and technology infrastructure sufficient to ensure no loss of service and continued safety of operation. 2. Annual Budget Plans. Annual budgets shall continue to show fiscal restraint. Annual budgets will be balanced between projected total funds available and total disbursements including established reserves. a. A managed reserve shall be maintained in the General Fund at a level sufficient to provide for temporary financing of critical unforeseen disbursements of a catastrophic emergency nature. The reserve will be maintained at a level of not less than two percent of total Combined General Fund disbursements in any given fiscal year. A Revenue Stabilization Fund (RSF) shall be maintained in addition...

Words: 1450 - Pages: 6

Premium Essay

Sdfwe

..................................................................................................................... 3 Venture Capital Financing Negotiations......................................................................... 3 Venture Capital Securities .............................................................................................. 6 Common Stock............................................................................................................ 6 Liquidation Preferences .............................................................................................. 6 Participation ................................................................................................................ 7 Participation Caps...

Words: 6336 - Pages: 26