Finance 2
Of all the mistakes I made while a student here, my single greatest regret, the one thing I dream of changing if I had the chance to do it all over again, would be to have the world simply stop for three minutes after every case discussion in class. That’s right, stop—go deathly silent, and the only thing I was allowed to do during those few precious minutes was jot down whatever was “on my mind” at the time. It could be a conceptual note based on the professor’s case summary, or just as likely it might have been a personal note to call my mother because something someone said during class caused me to think of her, how important she is to me, and how long it had been since I had spoken to her. Oh, what I’d give today for a notebook full of those “personal reflections.”
Leave your reflections as comments!
Steve Myrick
Luke Owings
chuckdieselfuel
Jessica Lackey
Williams – Never underestimate the transactional costs of getting a deal done. Buffett and Lehman could give a loan to Williams because they had pre-existing relationships and so understood the company so could jump up QUICKLY. (When you’re bankrupt in 60 days, 30 days of due diligence is too much)
Credit Markets – Even riskless arbitrage opportunities leave out some of the frictions in the market: you can’t buy and sell completely simultaneously so there’s a chance that you miss the window, there is a cost to maintaining and fulfilling your promises, and finally there is always counterparty risk. (to name a few)
M&M I and II – If there’s no cost of financial distress and no tax benefits, then it’s more apt that companies are choosing their capital structure more randomly. M&M start you on this way and then tell you where you need to look to find what market imperfections have been relaxed (in the real world!) to make one capital structure more attractive than another.
M&M – Transaction costs, signaling and limits to debt/equity issuance are not bad things, although they violate the “perfect capital markets” assumption. Those “imperfections” allow capital to eventually flow to better ideas in a real capital market.
UST – While the tax shield on interest makes leverage more appealing, all else equal, that’s a condition that never holds. Market signals, legal constraints and costs of financial distress are two factors that will always violate “all else equal.”
UST – The market value balance sheet is much more important for real valuations than the book value balance sheet.
Berkshire Partners – Offering ‘staple financing’ can rise the competition in an auction situation by reducing to barriers to bidding.
UAL, 2004: Cost of Financial Distress – How many companies (and in what industries) have actually been successful in pulling themselves out of Ch. 11? Is this really the best way to have companies go through this?
Stone Container Corp (Day 1) – Announcements can have completely unexpected reactions. Perhaps this is because of what they implicitly signal about the current worries of the company.
Stone Container Corp (Day 2) – Being overlevered can be an absorbing state. It can be close to impossible to dig yourself out once you’re in it.
Linear Technology – For a signal to be credible rather than cheap talk, there must be asymmetric information and it must be costly to lie.
Marriott – Blindly applying a single hurdle-rate will push your company toward risky investments.