I was never really a big fan of corporate finance while studying in business school but a recent reading has motivated me to refresh my memory on capital budgeting. In particular, I was interested in reviewing some of the basic concepts for calculating the project-specific discount rate, an estimate so important that a poorly calculated rate can sometimes undermine the quality of one’s entire forecast model.

So, let’s start with the basics. There are two equations that need to be discussed first: WACC (Weighted Average Cost of Capital) and CAPM (Capital Asset Pricing Model).

WACC

WACC is the minimal required rate of return on the company’s business (i.e. the rate that the company is expected to pay on average to all its security holders to finance its current assets). Re, calculated by CAPM, is the required rate of return on equity based on the company’s systematic risks (i.e. the rate that the company is expected to pay on average to its equity holders to finance its current assets). Rd is the company’s current cost of debt (i.e. the rate that the company is expected to pay on average to its loan owners to finance its current assets). MVe and MVd are the total market values for the company’s equity and debt respectively and t is the average tax rate paid by the company.

CAPM

Ri is the required return on the capital asset being evaluated, Rf is the risk free rate, and Rm is the return on a perfectly diversified investment portfolio (i.e. the general market). Beta is the correlation between the capital asset’s return and that of the general market. A capital asset with beta greater than 0 would have its return positively correlated to the return of the general market whereas a beta of 0 means that the capital asset’s return changes perfectly independently from that of the general market. Beta is commonly used as a relative measure of risks and frequently discussed in the context of stock investments. (more…)

“Competitive strategy is about being different.”
—Michael E. Porter

What is Strategy?

What is Strategy is a paper that Michael E. Porter published on HRB back in 1996 in an attempt to clarify the definition of strategy, which had been blurred by Japanese companies’ disruptive innovation in operational efficiency that had reshaped the competitive landscape in the US market during the 80s. So… What exactly is strategy according to Porter?

Long story short: differentiation, trade-off, and fit.

Differentiation: Strategy is creating a unique and valuable position supported by a set of activities different from rivals’, where  position is defined as the image or identity that customers have in mind for a particular product, service, brand, or organization.

There are three origins of strategic positions:

• Variety-based: Serving a wide array of customers in an industry but focusing on only a subset of their needs.
• Need-based: Serving only a particular group of customers in an industry but providing products/services to meet most or all their needs.
• Access-based: Serving customers that are reachable only through a different set of activities.

Positioning is not about craving out a niche and the focus can be either broad or narrow. Narrowly focused positions usually thrive on groups of customers who are either over-served or under-served by the companies with relatively broader positions. Additionally, positioning is always a function of differences on supply (i.e. activities) but not necessarily on demand (i.e. customers). Two companies can serve the same need with two different positions achieved by two different sets of activities. Both Criteo and Advertising.com serve the same customers (online advertisers) but are positioning themselves very differently through two different systems of activities. (more…)

Today I saw an interesting math riddle on Facebook. You have three minutes to answer the question and the riddle goes as follows:

A young man bought a pair of shoes in a shoe store. The cost of the pair to the store was $15 and the price was $21. The young man paid the shoe store with a $50 note for the pair of the shoes. The shoe store didn’t have enough changes and so the owner went to the shop next door to break the young man’s $50 note into changes. The shoe store gave the young man $29 and the young man left the store with his new pair of shoes.

Here comes the problem. The $50 note from the young man turned out to be faked and so the owner of the shoe store had no choice but gave $50 back to his neighbor. Now, how much money did the shoe store lose?

Remember, you have only three minutes.

(more…)

Why is it so difficult to find a simple WordPress plugin that would create a sidebar widget to display images with external links? Why can’t any image widget come with the basic next/previous navigation controls? All the image widgets out there are either overly feature rich or simply not working. jQuery? Ajax? Smooth sliding? Light box effect? Come on! Give me something simple!

After 5+ hours frustrating searching and swearing, I decided to write my own image links widget. The way the widget works now is very manual. It is really meant to stay this way. Here is what you need to do if you would also like to start using this simple widget in your WordPress blog.

1. Upload images using the Media Library that comes with every out-of-box WordPress installation. Make sure that you learn how to find the image URLs in the library.
2. Go Appearance>Widgets and put up a Text Widget.
3. Copy and paste the JavaScript & XHTML codes attached below to the textfield of the Text Widget.
4. Update the JavaScript variables: src, url, caption.
   • src: URLs that link to the Media Library images that you would like to display
   • url: Hyperlinks that will be attached to the images
   • caption: Descriptions used for the alt tags, rollover tooltips, and labels for the images
5. Update the XHTML tags: img src, img title, and img alt. This is the default image that will be loaded before any other images and should be the same as the first src/url/caption specified in the JavaScript

This simple and rather basic widget is highly customized to my own personal needs (i.e. to showcase the books that I am currently reading) and comes with no fancy animated transition. Again, it is meant to stay that way as this is all that I need. (more…)

Hello WordPress! Hello World! This is my first post just to say hello to everyone who happens to see my very first blog post!