While the internal rate of return (IRR) assumes the cash flows from a project are reinvested at the IRR, the modified IRR assumes that postive cash flows are reinvested at the firm's cost of capital, and the intial outlays are financed at the firm's financing cost. Therefore, MIRR more accurately reflects the cost and profitability of a project. The formula for MIRR is: |||For example, say a two-year project with an initial outlay of $195 and a cost of capital of 12%, will return $121 in the first year and $131 in the second year. To find the IRR of the project so that the net present value (NPV) = 0:NPV = 0 = -195 + 121/(1+ IRR) + 131/(1 + IRR)2 NPV = 0 when IRR = 18.66% To calculate the MIRR of the project, we have to assume that the positive cash flows will be reinvested at the 12% cost of capital. So the future value of the positive cash flows is computed as: $121(1.12) + $131 = $266.52 = Future Value of positive cash flows at t = 2 Now you divide the future value of the cash flows by the present value of the initial outlay, which was $195, and find the geometric return for 2 periods. =sqrt($266.52/195) -1 = 16.91% MIRR You can see here that the 16.91% MIRR is materially lower than the IRR of 18.66%. In this case, the IRR gives a too optimistic picture of the potential of the project, while the MIRR gives a more realistic evaluation of the project.
A type of pre-marketing of an initial public offering (IPO) that involves testing investor sentiment to receive feedback on how the market may respond to an issue. Pilot fishing has led to much controversy because it could undermine the role of investment bankers by providing advice to clients about the price at which the IPO is launched. Pilot fishing is practiced in Europe, but SEC regulations about what can and cannot occur during the SEC's IPO approval process prevent this from happening in the U.S. Analyst research is not allowed to be published before IPOs are approved by the SEC, so decisions made by investors is based mainly on prospectuses.
The IRS criteria used to establish whether or not you are within commuting distance from home. If you work away from home for longer than a normal workday and you require sleep, then the associated costs are tax deductible. This is used to determine whether you can deduct travel expenses such as food and lodging.
The new accelerated cost recovery system, created after the release of the Tax Reform Act of 1986, which allows for greater accelerated depreciation over longer time periods. |||Faster acceleration allows individuals to deduct greater amounts during the first few years of an asset's life.
After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers are being exposed. Ponzimonium refers to the tremendous growth rate in the number of people under investigation by the Securities Exchange Commission for suspected similar fraudulent behaviors. Possibly due to the heavy exposure of the event concerning Mr. Madoff's business practices or the downturn in the economy, the use of Ponzi schemes appears to be more prevalent than previously believed. Criminals are now even turning to fraudulent internet investment operations to cheat unsuspecting victims.
A mechanism seen in early-stage, pre-public companies in response to a subsequent round of financing that involves issuing shares at a lower price than first-stage investors received. A broad-based weighted average ratchet almost always involves preferred stock, in which early investors have a conversion price ("price X"), while a later round of investors receive preferred shares with a lower conversion price ("price Y"). A weighted average price is calculated that will effectively reprice the shares issued at price X and price Y to the value of: [(Price X) * (shares issued at Price X)] + [(Price Y) * (shares issued at Price Y)] / Total Outstanding Shares on a Fully Diluted Basis Taobiz explains Broad-based Weighted Average Ratchet The company issuing the shares would prefer to not make any adjustments to preferred shares with higher conversion prices, but most venture-capital groups and investors will insist on a clause that protects their interests in the event that a lower round of financing (also called a "down round") occurs in the future. In a broad-based ratchet, all rights of ownership (real or potential) are counted in the denominator of "total shares", whether they are preferred or convertible shares, warrants, or options. In a narrow-based ratchet, only common stock outstanding is used to compute the weighted-average price of shares to all investors.
A costing method by which the value of a pool of assets or expenses is assumed to be equal to the average cost of the assets or expenses in the pool. For example, if one share of Company A's stock is purchased on June 1 for $50.00, again on June 15 for $35.00, and again on Aug 10 for $40.00, the average-cost method assumes that three stocks were purchased for an average cost of $41.67. This number is arrived at by adding $50.00 + $35.00 + $40.00 and dividing the sum by 3, because there are three stocks in the pool.
A fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for older investors by acquiring new investors. This scam actually yields the promised returns to earlier investors, as long as there are more new investors. These schemes usually collapse on themselves when the new investments stop. The Ponzi scam is named after Charles Ponzi, a clerk in Boston who first orchestrated such a scheme in 1919. A Ponzi scheme is similar to a pyramid scheme in that both are based on using new investors' funds to pay the earlier backers. One difference between the two schemes is that the Ponzi mastermind gathers all relevant funds from new investors and then distributes them. Pyramid schemes, on the other hand, allow each investor to directly benefit depending on how many new investors are recruited. In this case, the person on the top of the pyramid does not at any point have access to all the money in the system. For both schemes, however, eventually there isn't enough money to go around and the schemes unravel.
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