In 2014, Apple was rumored to have approved Project Titan, Apple's development of an electric car. In 2015, Apple formally introduced the new project. At its height in 2018, Project Titan employed 5,000 people. Now, nearly a decade later after it started, Apple announced that it is shutting down Project Titan, thereby exercising the option to abandon. With shrinking demand for electric cars, Apple must have believed that spending more money on the new car isn't worth the payoff, even though Apple had reportedly already spent more than $10 billion on the project. We will likely see a write off announcement in the next several months detailing the total spent on the project. Apple has utilized another option as it also announced that many of the Project Titan employees would begin working on AI technology. Fortunately for Apple, it doesn't appear the money spent on this project will sink the company.
Essentials of Corporate Finance
Wednesday, February 28, 2024
Sunday, February 11, 2024
NYCB Dividend Cut
Banks stocks are generally affected by interest rates and
New York Community Bancorp (NYCB) is no different. NYCB has a large amount of loans
tied to New York City apartments and commercial real estate. With high interest
rates, New York City rent control policies, and changing demand for commercial
real estate in New York City, investors are concerned about the bank's future
performance. On January 31, 2024, the company
announced that it would slash its quarterly dividend from 4.17 to $.05, a
70 percent cut. Investors were none too pleased as the stock dropped from
$10.38 to $6.47, a 37 percent fall in one day. To see this, check out the stock
price chart from
finance.yahoo.com below.
Sunday, June 4, 2023
The Shortest Treasury Bills
As we mentioned in the textbook, generally the shortest Treasury bills
issued are 13 week maturity. However, given the recent debt ceiling
problems, the Treasury issued cash management bills (CMBs), with a one
day maturity. On Friday, June 2, the Treasury sold $15 billion
in one day CMBs, to be issued on June 5 that mature on June 6. Over the
past 25 years, the Treasury has held six CMBs auctions with a maturity
of one day. And on June 1, the Treasury auctioned $25 billion in
three-day bills.
Accounting Fiction?
A recent article in the Wall Street Journal
notes that as of May 26, 77 percent of the 485 companies in the S&P
500 that had reported earnings beat earnings, compared to the
historical rate of 66 percent. What is even more surprising is that the
earnings beats are 6.9 percent above expectations, compared to a 4.1
percent historical average. But accounting choices, which have been
labeled as potential earnings manipulation, may be the cause. For
example, Google extended the life of its server infrastructure from four
years to six years. The extension added 6 cents per share to earnings
due to lower depreciation. The company also shifted employee stock
awards from January to March, which also increased reported earnings.
And Carvana, which was expected to lose $2.03 per share only lost $1.51
per share. The company had taken charges in the previous quarter when
used car prices had plummeted and expected to sell cars for less. When
used car prices increases, the company unwound those loses, increasing
earnings per share by $.48, almost all of the earnings beat.
Sunday, February 19, 2023
A Green NPV
European low cost carrier Ryanair announced a new project
that will install Split Scimitar winglets on each of the company's
Boeing 737-800s. The installation is expected to reduce fuel consumption
by 1.5 percent and reduce CO2 emissions by 165,000 tons per year. So,
the project is green for the environment, but is it green for stock
holders? A quick calculation shows that it is. Based on the numbers,
Ryanair spent €1.14 billion on fuel in a recent quarter, which amounts to €4.56 billion per year. A 1.5 percent savings in fuel costs is
€68.4 million per year. This savings results in a payback period of 2.92
years. Assuming a 10 percent discount rate and 20 years of operation, the NPV is about €382 million. Sounds like a green, green project to us.
Wednesday, January 25, 2023
Your Song (Is For Sale)
Any stream of cash flows can potentially be sold for the present value
of its cash flows. And one of the biggest cash flows being sold recently
is an artist's song catalog. The owner of a song catalog receives the
cash flows from the royalty paid whenever a song is played. It was
announced yesterday that Justin Bieber's song catalog
was sold for a reported $200 million. And although we agree that this
is a tidy sum, it is still smaller than the $500 million that Bruce
Springsteen or $300 million that Bob Dylan received last year for
similar sales. The price isn't cheap as song catalogs are reportedly
being sold for 30 times annual royalties.
Future Stock Returns
As Mark Twain once said, "Prediction is difficult - especially about
the future." And while investors would wish otherwise, predictions about
the stock market are especially difficult. Many investors will use
historical returns as an estimate of future returns. However, the job of
an analyst is to make stock market predictions based off additional
evidence. Recently, Vanguard, one of the largest mutual fund companies
in the world, released its 10-year annualized forecast
for financial markets. Vanguard is estimating only a 4.7% to 6.7%
annual return for large-cap U.S. stocks and a 5.0% to 7.0% annual return
for small cap stocks. So will the stock market achieve its historical
average return over the next 10 years, or is Vanguard correct? Check
back with us in 2033!