Wordy Topics Flashcards
5 Political Risks
- Nationalisation
- Tariffs
- Quotas
- Restrictions
- Non-Tariff barriers
Political Risk - Tariffs
Extra taxes on imports
Political Risk - Quotas
Limits on quantities
Political Risk - Restrictions
Min Shareholdings and no foreign ownership
Political Risk - Non-Tariff Barriers
Extra quality and safety checks
How to manage Political Risks
- Insurance
- Operate as joint venture
- Agree Concessions
- Produce/ Contract locally
4 Environmental Cost Classifications
- Prevention Costs
- Appraisal Costs
- Internal Failure
- External Failure
Environmental Cost Classifications - Prevention costs
Stop impact
e.g Staff training
Environmental Cost Classifications - Appraisal Costs
Monitoring
e.g Onsite Inspections
Environmental Cost Classifications - Internal Failure
Internal Waste
e.g Waste Disposal
Environmental Cost Classifications - External Failure
External Waste
e.g Fines
Predictive Analytics
Use historic or current data to predict the future
Prescriptive Analytics
AI/algorithms to calculate best business decision
Prescriptive Analytics - Advantages
Gives a decision in complex decisions
Prescriptive Analytics - Disadvantages
Advanced data science skills required and only as reliable as input data
What is the Monte Carlo Simulation
Hundreds of NPVs for 1 scenario which alter variables each time
To achieve the most common NPV and a range of possible ones
Monte Carlo Simulation - Advantages
- Shows spread
- Useful for problem solving
Monte Carlo Simulation - Disadvantages
- No decision
- Expensive
- Computer-based
- Probability assumptions
Loan Stock with Warrant
a loan that comes with a separate call option
Types of Green Financing
Green Bonds - fixed interest
Green loans - Loans for green projects
Green Funds - Investors target socially responsible companies
Sustainability linked loans - cheaper if sustainability targets are met
3 Efficient Market Hypothesis
- Weak Form
- Semi- Strong
- Strong Form
Weak Form Efficient Market Hypothesis
SP reflect - Past info
Beat Market By - Analysis of forecasts
When a positive NPV project is in SP - Value is evidenced
Semi-Strong Efficient Market Hypothesis
SP reflect - Public info
Beat Market By - Insider Trading (Illegal)
When a positive NPV project is in SP - Announced
Strong Form Efficient Market Hypothesis
SP reflect - All info
Beat Market By - Luck
When a positive NPV project is in SP - Board agree to project
Practical Consideration for Capital Structure
- Impacts on control
- Competitor’s structures
- Shareholders’ Opinion
- Assets for security
- Availability
- Cost
- Tax rate
- Financial risk
- Debt covenants
