Stock Repurchase Tax

The Senate recently passed the Inflation Reduction Act of 2022. Major components of the Act include spending on climate change, increased IRS spending, and measures to lower the cost of prescription drugs. In order to pass the Act, a last minute change to get the necessary votes was a 1 percent excise tax on stock repurchases. As we showed in the text, dividends and stock repurchases affect a company and investors in much the same way. The tax may push companies toward dividends, although since the new tax wouldn't take effect until 2023, analysts are expecting large repurchases to be completed by the end of 2022.

As we discussed in the textbook, stock prices move when unexpected news comes to light. Economists expected that inflation for July would be 8.7 percent, lower than June's 9.1 percent. Instead, it was announced today that July's inflation was "only" 8.5 percent. The stock market reacted dramatically as the S&P 500 jumped about 2 percent and both the Nasdaq and Russell 2000 jumped almost 3 percent. And for investors in Disney the news was even better: EPS was $1.09 compared to the $.96 estimate, and the subscriber addition was 14.4 million streamers versus the expected 10 million. With the combined market news and company news, Disney stock jumped about 7 percent.

Bobby Bonilla Day

Every July 1st is Bobby Bonilla Day! You may not be aware that the now retired slugger signed a contract with the New York Mets in 2000 that deferred his $5.9 million salary in exchange for about $1.2 million per year from 2011 through 2035 on July 1st. And while this is a great payday, Bobby Bo recently announced that he was auctioning off his copy of the famous contract. The package includes a baseball signed by Bonilla, a game-used bat, a Zoom call, breakfast and dinner with Bonilla, and attending a Mets game with the slugger. The starting bid is $10,000, so it looks like he will make even more money from the contract.

Inventory Spikes

During 2021, much of the talk concerning inventory surrounded shortages due to a variety of factors. In response, many companies increased production and orders to combat supply chain disruptions and increased consumer demand coming out of COVID-19 lockdowns. Now, it appears that companies have overshot demand as inventories have surged. For example, inventories for global manufacturing companies reached a record $1.87 trillion. As a result, inventory turnover for manufacturers increased to 81.1 days. And retailers are no different: Inventory for Macy's, Target, Walmart and other large retailers has increased from 17 to 45 percent compared to last year. This increased inventory is a boon for off-price retailers like Ross and TJ Maxx, which have a larger supply from big retailers offloading excess inventory. For many corporations, the excess inventory will likely negatively impact the bottom line.

Bad Luck Investing

Hopefully you realize that the best time to invest is when stock prices are low and the worst time is when prices are high. But patience is a virtue and can have rewards. A recent article introduces Betty Badluck, who just happened to invest at the stock market tops during the past 35 years. So what happened to Betty? As you will see, while the returns were not fantastic, over time, the stock market has historically rebounded and she still has three times her investment in real terms. This is an important note on stock market history: While we can't predict the future, over the long-term, the stock market has historically provided positive returns.

Volatility And IPO Slowdown

When a company is undertaking an IPO, surprises are not good. The CBOE Volatility Index (VIX) is a measure of the market's 30-day expectation of future volatility. When the VIX is high, the market returns are volatile, which makes pricing an IPO very difficult. When this happens, IPOs slow down. During early 2022, the VIX has been rising due to uncertainty in both the global and domestic economies. As a result, the IPO market has slowed down. In fact, IPOs are only 75 percent of last year's pace.

NPV Analysis

It is always interesting to see a real-world application of concepts you have learned in class. Recently, Voyageur Pharmaceuticals Ltd. released the results of its capital budgeting analysis of a barium sulfate project in British Columbia, Canada. Notice the company repeatedly refers to the project NPV, but also calculates the IRR and payback period. The report includes the key variable assumptions and the NPV per share. What we also find interesting is the sensitivity figure near the bottom of the article. The company shows the sensitivity of the project to changes in operating costs, revenue, and capital. It appears that the NPV of this project is most sensitive to changes in revenue.