Discounted Cash Flow Models

• For Cash Flow to Equity computation use Cost of Equity as a discount rate
• Use Equity Valuation for firms which have stable leverage
• For Cash Flow to Firm computation use Cost of Capital as a discount rate
• Use Firm Valuation for firms which have high leverage and expect to lower the leverage over time

Direct

It doesn’t interest me what you do for a living. I want to know what you ache for, and if you dare to dream of meeting your heart’s longing.

It doesn’t interest me how old you are. I want to know if you will risk looking like a fool for love, for your dream, for the adventure of being alive.

It doesn’t interest me what planets are squaring your moon. I want to know if you have touched the center of your own sorrow, if you have been opened by life’s betrayals or have become shriveled and closed from fear of further pain! I want to know if you can sit with pain, mine or your own, without moving to hide it or fade it, or fix it. I want to know if you can be with joy, mine or your own, if you can dance with wildness and let the ecstasy fill you to the tips of your fingers and toes without cautioning us to be careful, to be realistic, to remember the limitations of being human.

It doesn’t interest me if the story you are telling me is true. I want to know if you can disappoint another to be true to yourself; if you can bear the accusation of betrayal and not betray your own soul; if you can be faithless and therefore trustworthy. I want to know if you can see beauty even when it’s not pretty, every day, and if you can source your own life from its presence. I want to know if you can live with failure, yours and mine, and still stand on the edge of the lake and shout to the silver of the full moon, “Yes!”

It doesn’t interest me to know where you live or how much money you have. I want to know if you can get up, after the night of grief and despair, weary and bruised to the bone, and do what needs to be done to feed the children.

It doesn’t interest me who you know or how you came to be here. I want to know if you will stand in the center of the fire with me and not shrink back. It doesn’t interest me where or what or with whom you have studied. I want to know what sustains you, from the inside, when all else falls away. I want to know if you can be alone with yourself and if you truly like the company you keep in the empty moments."

Subprime Crisis, Credit Crunch or Global Financial Crisis? - A Future Perspective

2013: The government-owned Citibank of America, formed by the forced merger and nationalization of the United States’ two biggest banks, now dominates retail banking. The number of U.S. banks has fallen by half, from 8,534 in 2007. There are just 3,000 hedge funds all over the world – less than a third of the precrisis total. The regulatory framework that was imposed by Treasury Secretary Timothy Geithner in the previous four years has completely changed the financial landscape. With new restrictions on executive compensation, bank capitalization,and derivatives trading,retail banking has become more like a public utility. Even nonbank entities like hedge funds and insurance companies have to operate under the unsleeping eye of the new Financial Authority for the Regulation of Systemic Institutions (FARSI).

Despite FARSI’s extensive powers, the U.S. government is still grappling with the fiscal legacy of the crisis. The federal debt is now around $20 trillion – $3 trillion higher than the Obama administration forecast in its 2009 budget. The top income tax rate is 45%. The S&P 500 is down to 418, where it was in December 1991 – a decline comparable to that between 1929 and 1934. The United States, it appears, is stuck in the middle of its own lost decade, with real GDP having grown by barely 1% per annum since 2010.

We started out calling it the Subprime Crisis. It quickly became the Credit Crunch and then the Global Financial Crisis. By 2013 a new name has stuck: the Breakdown.

The breakdown of the American colossus has fundamentally altered the international economic order. China’s GDP in 2013 is half that of the United States; in 2006 it was only one-fi ft h as big. The U.S. dollar has halved in value against the Chinese yuan
following a Russo-Chinese initiative to replace the greenback as the international reserve currency with the International Monetary Fund’s Special Drawing Rights (SDRs, pronounced “sadders”). Oil, for instance, is priced in SDRs.

For the newly elected U.S. president, Jeb Bush, who defeated Sarah Palin for the Republican nomination in 2012, the time has fi nally come to Put America First. Treasury Secretary John Paulson says he is optimistic about his negotiations with the IMF to repay the 150 billion SDR loan negotiated by his predecessor. An investor in gold mines all over the world, Paulson is enthusiastic about the president’s plan to return the United States to the gold standard. At the G4’s latest meeting, the Brazilian, Russian, Indian, and Chinese foreign ministers unite to condemn Commerce Secretary Lou Dobbs’s latest round of tariff s on imported apparel and automobiles.

Meanwhile, Defense Secretary Max Boot confirms that U.S. “R” (for robot) forces will continue to be deployed in the radioactive zone around Bushehr as part of Operation Iranian Freedom, launched by the new Bush administration to support Israel’s recent strikes on Iran’s nuclear facilities. With unemployment stuck at 12%, many Americans are excited by the military successes in Iran; the Islamic Republic inflicted several humiliations on President Obama’s administration aft er his disastrous visit to Tehran in 2010. However, people are more nervous about the naval clashes between American and Chinese forces in the South China Sea.

Dealing with School Loans During a Layoff

Excerpted from WSJ.com

Even when I had a job, paying my monthly bills was never a highlight of my days but I had a job so I could afford it. It was okay. These days though, with just unemployment insurance as income, those loan bills are sitting in my mailbox and email inbox a little longer.

Many of my laid off business school colleagues are deferring their student loan payments. But I just can’t afford to…yet. I took out loans at the height of the interest rate boom. And when I consolidated, well, we’re talking over 7% interest. It’s a pretty high number, considering how interest rates have fallen. I’ve tried petitioning my lenders to reduce my rates, but to no avail. I’m locked in.

I’ve been asked, why not defer? Well deferment, at least for now, is not an option especially with my private loans. If I were to defer, the loans would compound in interest, racking up quite a pricey bill over a year. Thus, each month just under half of my unemployment check goes to Sallie Mae and AES for my private loans.
Strange as it sounds, I’m more concerned about how to pay my student loans when my unemployment insurance ends than my living costs. Go figure.

In the next few months as my unemployment runs out, my small savings will dwindle as I pay these loans. Once my savings runs out, I’ll eventually have to stop paying student loans and watch the high interest mount. I have already cut back as much as possible. I have rented out my apartment and currently live with friends and family. I cannot cut back anymore, as there’s nothing more to cut back on. I do not buy clothes, go to expensive restaurants, or otherwise spend money.

Recently, I read an article about how some Americans in default with huge student loans have fled the country and started new lives abroad because they can’t obtain jobs at salary levels sufficient to repay their loans. And I regularly read about the Americans underwater on their homes, cars, and other investments, who are walking away from these debts. But even declaring bankruptcy doesn’t clear away educational loans.

I have many friends also struggling with heavy student loan burdens, and wonder if there is not a better solution to obtaining an education. When school tuition for many colleges and universities costs hundreds of thousands of dollars, I wonder how other laid off workers are managing their student loan payments.

The fact is, it has made me question the high cost of my M.B.A. I hope schools will implement a counseling system to advise students as to long-term effects of financial aid choices as this recession continues. I received a full scholarship for my undergraduate degree, and had never dealt with the financial aid system before.

At the end of the day though, I choose to believe one day I will be able to pay off these loans. But I do wonder: the government has been handing out money to bail out banks and has been assisting homeowners who can’t afford their high interest mortgages. How about a student loan or even a student loan interest rate bailout, especially during this recession? It sure would make checking my mailbox a little less stressful.

The Creed of Sinbads

Merchant Navy is a funny profession. Vaguely speaking, you’re paid handsomely for living miserably. Now the word ‘miserably’, too strong as it suggests, might provoke some debate among seafarers, since everyone has his own way of looking at it. Some call the ship as ‘Floating Island’, though the ‘Floating’ part doesn’t help in minimizing the agony of living on an ‘Island’. Sometimes the ‘floating’ goes on for a month, like my present voyage; we’re sailing from Dubai to Houston via Cape Town. And sometimes we hit the port every second day if we sail in the waters of Western Europe.

As for me, I have always seen my tenures on ship as an opportunity to do the things that I might not want to do on land. After each sailing we go back to the motherland with lot of money in the bank account. These paid leaves make us do everything that we were refrained to do while on ship. We go different places, party almost every night, buy all those coveted stuffs without thinking twice about the money. But as the popular phrase says among the seafarers: “Paani ka paisa paani ke terah beh jata hai”.

And then we are back on ship. And the cycle goes on. But while following the strict routine of the Merchant Navy life, I somehow got use to goad myself and make the most of the ‘seemingly miserable’ life. With no friends, no booze, no parties, no phone calls around for five months, I know I have this opportunity to learn something new in my solitude. I read lot of books, participate in lot of online forums and discussions, learn new skills and languages etc.

This readiness of keeping myself occupied myself all the time has a dark fear behind it; the fear of getting entrapped in the so called ‘miserable’ life. I’m afraid to spend any five months of my life in a miserable state. Now when with every passing day I’m coming closer to conclude the first phase of my professional life, I’m feeling happy. The road ahead is surely not going to be full of shipping-cycles.

Inside the Meltdown

Excerpted from Public Broadcasting Service

On Thursday, Sept. 18, 2008, the astonished leadership of the U.S. Congress was told in a private session by the chairman of the Federal Reserve that the American economy was in grave danger of a complete meltdown within a matter of days. "There was literally a pause in that room where the oxygen left," says Sen. Christopher Dodd (D-Conn.)

As the housing bubble burst and trillions of dollars' worth of toxic mortgages began to go bad in 2007, fear spread through the massive firms that form the heart of Wall Street. By the spring of 2008, burdened by billions of dollars of bad mortgages, the investment bank Bear Stearns was the subject of rumors that it would soon fail.

"Rumors are such that they can just plain put you out of business," Bear Stearns' former CEO Alan "Ace" Greenberg tells FRONTLINE.

The company's stock had dropped from $171 to $57 a share, and it was hours from declaring bankruptcy. Federal Reserve Chairman Ben Bernanke acted. "It was clear that this had to be contained. There was no doubt in his mind," says Bernanke's colleague, economist Mark Gertler.

Bernanke, a former economics professor from Princeton, specialized in studying the Great Depression. "He more than anybody else appreciated what would happen if it got out of control," Gertler explains.

To stabilize the markets, Bernanke engineered a shotgun marriage between Bear Sterns and the commercial bank JPMorgan, with a promise that the federal government would use $30 billion to cover Bear Stearns' questionable assets tied to toxic mortgages. It was an unprecedented effort to stop the contagion of fear that seemed to be threatening the rest of Wall Street.

While publicly supportive of the deal, Treasury Secretary Henry Paulson, a former Wall Street executive with Goldman Sachs, was uncomfortable with government interference in the markets. That summer, he issued a warning to his former colleagues not to expect future government bailouts, saying he was concerned about a legal concept known as moral hazard.

Within months, however, Paulson would witness the virtual collapse of the giant mortgage companies Fannie Mae and Freddie Mac and preside over their takeover by the federal government.

The episode sent shockwaves through the economy as confidence in Wall Street began to evaporate. Within days, in September 2008, another investment bank, Lehman Brothers, was on the brink of collapse. Once again, there were calls for Bernanke and Paulson to bail out the Wall Street giant. But Paulson was under intense political pressure from conservative Republicans in Washington to invoke moral hazard and let the company fail.
"You had a conservative secretary of the Treasury and conservative administration. There was right-wing criticism over Bear Stearns," saysCongressman Barney Frank (D-Mass.), chairman of the House Financial Services Committee.

Paulson pushed Lehman's CEO Dick Fuld to find a buyer for his ailing company. But no company would buy Lehman unless the government offered a deal similar to the one Bear Stearns had received. Paulson refused, and Lehman Brothers declared bankruptcy.
FRONTLINE then chronicles the disaster that followed. Within 24 hours, the stock market crashed, and credit markets around the world froze. "We're no longer talking about mortgages," says economist Gertler. "We're talking about car loans, loans to small businesses, commercial paper borrowing by large banks. This is like a disease spreading."
"I think that the secretary of the Treasury could not fully comprehend what that linkage was and the extent to which this would materialize into problems," says former Lehman board member Henry Kaufman.

Paulson was thunderstruck. "This is the utter nightmare of an economic policy-maker," Nobel Prize-winning economist Paul Krugman tells FRONTLINE. "You may have just made the decision that destroyed the world. Absolutely terrifying moment."

In response, Paulson and Bernanke would propose -- and Congress would eventually pass -- a $700 billion bailout plan. FRONTLINE goes inside the deliberations surrounding the passage of the legislation and examines its unsuccessful implementation.

"Many Americans still don't understand what has happened to the economy," FRONTLINE producer/director Michael Kirk says. "How did it all go so bad so quickly? Who is responsible? How effective has the response from Washington and Wall Street been? Those are the questions at the heart of Inside the Meltdown."

How our U.S. Financial Crisis is affecting MBA's

Excerpted from WSJ.com...

"When Adrian Chan enrolled in an M.B.A. program at Hong Kong University of Science and Technology last year, he hoped to use the degree to jump industries, from information technology to investment banking.

Mr. Chan, who majored in finance in his M.B.A., pictured himself structuring derivatives or selling equities at a top-tier bank in his hometown of Hong Kong -- and earning a lot more than he did as a software developer in his past jobs at Amazon.com Inc., in Seattle, and Oanda Corp., in Toronto. Mr. Chan, who'll graduate in December into the worst financial-sector meltdown in recent history, is now perusing IT job ads.

"It's a much more competitive job market," he says. "The employers who are hiring want people with experience, and there's lots of experienced people who've lost their jobs and looking for work. For those of us switching careers, it's going to be much harder."

The fallout from the financial crisis is already starting to echo through the halls of the world's business schools. Students who had hoped for a finance career are looking elsewhere -- or bracing themselves for short-term work at much lower pay.

Admissions officers are starting to see a big jump in applications for full-time M.B.A. programs, as professionals faced with a soft job market look for ways to ride out the storm and burnish their résumés. Applications for executive M.B.A.s, which attract more senior executives whose employers typically pick up some or all of the tab, will likely drop: Companies are looking for ways to trim budgets as the global economy slows, and executive education is often seen as an extra that can go.

For most investment banks, new hires have been categorized as another "extra" that has to go, too. Many big banks have put on a hiring freeze and vowed to trim existing staff. That's likely to prompt some M.B.A. students to switch from a finance concentration to other areas, like marketing -- or at least recast their résumés to better target jobs in areas outside banking, M.B.A. professors say.

"It's early days, but even if we're not seeing that yet we will see more of it," says Jake Cohen, dean of Insead's M.B.A. program. "We had some students who had summer internships at places like Lehman, and those students are looking to switch to consulting or industry jobs." The French business school has campuses in Fontainebleau, outside Paris, and in Singapore. Insead's M.B.A. is a general management program that doesn't offer different majors.

That's not the case at HKUST -- and many M.B.A. students do take a finance concentration. Typically half the class winds up in jobs in Hong Kong's finance sector.

"We don't expect that this year, and we are warning our students that there will be a real tightening, whether temporary or not, and headcounts are being reduced at a lot of the big Western banks," says Steven DeKrey, HKUST's senior associate dean and M.B.A. program director. Mr. DeKrey, who's also the chairman of the American Chamber of Commerce in Hong Kong, says Amcham's members indicate that the hiring situation will get even grimmer, and nobody has any idea when it might improve. "Even the JP Morgans, the Morgan Stanleys, the real strong players who are on our board here, are not able to look too far out," says Mr. DeKrey.

There is one likely positive impact, educators say: Smart people who are usually snapped up by banks will wind up elsewhere in the economy, bringing a boost to other sectors.

"It'll break the hold that investment banks have on talent. The world's best investment banks traditionally take the best graduates from programs like ours," says Stephen Chambers, director of the M.B.A. and executive M.B.A. degrees at Oxford University's Saïd Business School. "I think one optimistic outcome is that the really brilliant people who used to go straight from Oxford to Lehman or Goldman are going to do something else interesting -- that might well be a microfinance initiative or an entrepreneurial venture or something completely different."

Others are likely to bring their new M.B.A. skills back to their old sector. Mr. Chan, who's doing the last few classes on a part-time basis, recently landed a six-week contract with Royal Bank of Scotland in Hong Kong. It's a rolling contract that could continue, but Mr. Chan has no idea where that will lead. RBS is one of the largest recipients of the U.K. government's bailout package, and executives there are widely expected to start trimming the organization.

The few full-time entry-level investment-banking jobs available in Hong Kong pay about 50% less than Mr. Chan had expected when he started his M.B.A. "Salary levels are coming down," he says. "If I do get a permanent job in banking, it'll be a pay drop for me." He's now going to cast the net wider and look for IT jobs as well.
The financial meltdown may be bad news for M.B.A. students, but it's good news, in part, for M.B.A. schools. Applications tend to rise sharply when economies lose steam.

"Given the job market is not so good, people say 'let me invest in myself for the next year or two,' " says Mr. Cohen, at Insead's Singapore campus. He expects applications for Insead's full-time M.B.A. program to go up by 25% this year.
One challenge facing M.B.A. students is funding: it's getting harder to get student loans in the U.S., where banks, hit by the credit squeeze, are lending less. Banks in other parts of the world are likely to follow suit as credit dries up world-wide."

Why MBA Means 'More Bitterness Ahead'

Excerpted from Time.com...

First came the crash. Now come the ripples. At business schools around the country, 'tis the season for MBA recruiting. But for Wall Street wannabes who banked on school yielding a six-figure finance job, bitter reality is setting in. Offers from financial firms are slowing, as budgets get slashed and freezes take effect.

This year's recruiting season may feel longer, more competitive, and more painful for soon-to-be-minted MBAs than any in recent memory. Amid pervasive market uncertainty, admissions officers and students at business schools around the country say the recruiting climate has shifted noticeably, particularly in the financial sector. "Uncertainty is the buzzword," says Deanna M. Fuehne, Director of the Career Management Center at Rice University's Jones Graduate School of Management. "Consulting firms and banks are worried that clients may pull projects and deals. Company recruiters are worried about staff reductions. So it's become a game of 'wait and see.'"

"Firms are being more conservative," says Roxanne Hori, Assistant Dean and Director of the Career Management Center at Northwestern's Kellogg School of Management. "Nobody wants to be over head count." Hori says that higher retention of current employees — given the Wall Street climate — may mean less room for new recruits. As institutions wait out the Wall Street storm, they know many students will still be in the market for a job when spring comes around.

Fuehne and other administrators say many students are nervous, particularly those who have never faced a prolonged market decline. Andy Chan, Assistant Dean and Director of the Career Management Center at the Stanford Graduate School of Business, says he sees some students going through a kind of grief cycle, first coping with shock, then denial and disappointment. Many current MBA students graduated from college as the tech bubble was bursting, Chan points out, so they're frustrated at the prospect of once again graduating into a cold job market.

In between their first and second years of school, MBA candidates typically intern in the hopes of securing a promised position after graduation. But this year, more students than usual are in a holding pattern, even after successful internships. Firms want to see how the economy looks at year's end before committing to a new class of recruits. "There's likely to be more 'as-needed' hiring," says Regina Resnick, Assistant Dean at the Columbia Business School, where about half of the graduating class typically pursues employment in financial services, whether in venture capital, private equity, investment banking or something related.

Recruiting season typically heats up at the end of October, as smartly-dressed company reps fly in to dangle the big numbers that quickly lure spreadsheet-crunching MBAs onto the lower-rungs of their corporate ladders. And even in the current environment, some students are winning lucrative posts. At Rice, a student who fretted his full-time offer from Lehman Brothers would vaporize when the Barclays takeover was announced got a call that same day saying his offer would be honored. That's the exception, though, says Fuehne. "Many of our students who interned in banking did not receive offers."

Here are some other trends affecting MBA grads in the current climate for better or worse:
•Opportunistic Recruiting MBA career advisers say smaller firms and boutique investment companies are taking advantage of Wall Street's weakness to try to snatch up the smartest young talent.
• Geographic Retrenchment Some financial firms that do have slots to fill this fall will cut back on the number of schools they visit. Rather than covering all corners of the country, some firms are focusing on a smaller core group of schools. That may hurt schools further afield that ordinarily benefit from companies casting a wide net.
•Heightened Competition As the financial recruiting process slows, students who had planned on working in finance are competing more aggressively for consulting and other positions.

Northwestern's Hori says the silver lining in the current climate is that many students are stepping back to reflect on whether they really want to follow the Wall Street herd even if recruiters do eventually come knocking. At Stanford, where 37% of business school students who graduated last year took finance-related jobs, many students are looking closely at non-finance companies recruiting on campus for the first time, including Facebook, Disney, and Sony. Resnick, Hori and leaders of other schools likewise report rising student interest in alternatives to finance, particularly in areas like social enterprise, energy, and health care.

Postscript: I'm witnessing the MBA scene firsthand this year as a second-year MBA fellowship student at the Columbia Business School. Even as my classmates relish their classes and the study-hard, play-hard nature of school, some sound concerned when the subject turns to their job hunt. At the Harvard Business School, a second-year MBA candidate recently posted a blog entry poking fun at the euphemisms business school students use to explain why one internship or another hasn't yielded a full-time offer. What they say is "There wasn't a cultural fit," or "I wouldn't have gone back anyway," blogger CS@HBS writes. But what they mean is "I didn't get an offer."