Denis Becker

Managerial Finance 48(3) p. 470-499 Doi: https://doi.org/10.1108/MF-03-2021-0135

Purpose The purpose of this paper is to establish the flow-to-equity method, the free cash flow (FCF) method, the adjusted present value method and the relationships between these methods when the FCF appears as an annuity. More specifically, we depart from the two most widely used evaluation settings. The first setting is that of Modigliani and Miller who based their analysis on a stationary FCF. The second setting is that of Miles and Ezzell who worked with an FCF that represents an autoregressive possess of first order. Design/methodology/approach Inspired by recent observations in the literature concerning cash flows, discount rates and values in discounted cash flow (DCF) methods, we mathematically derive DCF valuation formulas for annuities. Findings The following relationships are established: (a) the correct discount rate of the tax shield when the free cash flow takes the form of a first-order autoregressive annuity, (b) the direct valuation of the tax shield from the free cash flow for a first-order autoregressive annuity, (c) the correct translation from the required return on unlevered equity to the levered equity, when the free cash flow is a stationary annuity and (d) direct calculation of the unlevered and levered firm values and the value of the tax shield for a stationary annuity. Originality/value Until now the complete set of formulas for the valuation of stochastic annuities by different DCF methods has not been established in the literature. These formulas are developed here. These formulas are important for practitioners and academics when it comes to the valuation of cash flows of finite lifetime.

Sport, Business and Management Doi: https://doi.org/10.1108/SBM-12-2020-0132

Purpose – This paper sought to determine how a major sport event can become trapped in a winner’s curse, in which the fierce competition to host the event forces organisers to spend more on acquiring and hosting it than what it is worth in economic terms. Design/methodology/approach – This study used a combination of document analysis and 47 in-depth interviews with 51 individuals representing various private and public organisations involved in the implementation of the UCI 2017 Road Cycling World Championship. Snowball sampling and a semi-structured interview guide were used to ensure coverage of all relevant information. Findings – The organiser and the host municipal lacked the necessary experience with events of this size and character. Information from previous championships events was not transferred, and the municipality administration did not utilise experiences from hosting previous events. Limited financial resources prevented the organiser from hiring enough employees with the necessary competence. Lack of communication between the stakeholders who contributed in hosting the event reduced the quality of planning and preparations. A dubious culture and lack of seriousness within the Norwegian Cycling Federation, which was the owner of organising company, seemed to have been transferred to organiser. Originality/value – The research identifies some of the reasons why major sports events so often turns out to be more problematic than expected in economic terms, not only for the organiser but also for actors in the public sector in the host city. The novelty is that it goes into depth on the underlying reasons and the dynamic forces behind these problems.

Cogent Economics & Finance 9(1) Doi: https://doi.org/10.1080/23322039.2020.1862446

This paper addresses the differences between the Modigliani-Miller [M&M] model (1958, 1963) and the Miles-Ezzell [M&E] model (1980, 1985). The main difference between these two models concerns the stochasticity of the free cash flows. While M&M assumes a strictly stationary process, M&E’s process is a martingale. However, this subtle difference has not been fully exposed, and previous literature has produced partly erroneous statements or inconsistent valuation models. Therefore, the main objective of this paper is to illustrate and accentuate the effect of these two mutually exclusive stochastic processes on the timely behavior of cash flows, discount rates, and values of the firm, equity, debt, and tax shield. For this purpose, we perform a numerical experiment that allows the determination of values and discount rates by means of the risk-neutral approach. We show that in the M&E model, all cash flows and values are path-dependent, while they are not in M&M’s world. Furthermore, in M&E’s model, all discount rates are time-invariant, except for the discount rate applied to tax shields, which depends on the lifetime of the cash flows. Contrarily, in the M&M setup, all discount rates change across time, except for the constant discount rate of the tax shield. This has consequences for the applicability of the well-known present-value formula for annuities and for building consistent valuation models for both finite and perpetual cash flows.

Energy 237 Doi: https://doi.org/10.1016/j.energy.2021.121543

The availability of accurate day-ahead electricity price forecasts is pivotal for electricity market participants. In the context of trade liberalisation and market harmonisation in the European markets, accurate price forecasting becomes difficult for electricity market participants to obtain because electricity forecasting requires the consideration of features from ever-growing coupling markets. This study provides a method of exploring the influence of market coupling on electricity price prediction. We apply state-of-the-art long short-term memory (LSTM) deep neural networks combined with feature selection algorithms for electricity price prediction under the consideration of market coupling. LSTM models have a good performance in handling nonlinear and complex problems and processing time series data. In our empirical study of the Nordic market, the proposed models obtain considerably accurate results. The results show that feature selection is essential to achieving accurate prediction, and features from integrated markets have an impact on prediction. The feature importance analysis implies that the German market has a salient role in the price generation of Nord Pool.

Managerial Finance Doi: https://doi.org/10.1108/MF-02-2020-0069

Purpose The primary purpose of this paper is to develop the translation formula between the required return on unlevered and levered equity for the specific case where cash flows have a finite lifetime and the flow to debt is prespecified. The secondary purpose of this paper is to underpin the importance of the type of stochasticity of cash flows for translation formulas. A general derivation of such formulas and the discount rate in the free cash flow approach is shown. Design/methodology/approach The paper starts with the same assumptions that have been applied by Modigliani and Miller (1963), Miles and Ezzell (1980) and other researchers. Then the paper develops the mathematical foundations to apply a deterministic backward-iterative scheme for valuing cash flows. After stating the valuation formulas for levered and unlevered equity, debt and tax shields, the authors mathematically derive the relationship between the unlevered return and levered return on equity. Findings Conventional translation formulas apply to very special cases. They can generally not be used for projects with nonconstant leverage and a finite lifetime. In general, translation formulas depend on continuing values, cash flows, leverage, taxation, risk-free rate, etc. In this paper, the translation depends on the structure of the debt in addition to the well-known parameters in conventional formulas. This paper formula contains the Modigliani-Miller translation formula as a special case. Originality/value The authors develop a novel formula for the translation of the required return on unlevered to levered equity. With this formula, the authors offer a solution for the consistent valuation of cash flows with a limited lifetime and given debt financing.

Transactions on Emerging Telecommunications Technologies 30(1) Doi: https://doi.org/10.1002/ett.3514

This paper represents a model that supports the choice of efficient service portfolios at a cloud service broker. Among the many types of different cloud service brokers, we focus on a firm that offers service bundles that are composed from different services of different internet software providers. The necessary integration, aggregation, and customization of services can be time consuming and costly. Whenever the cloud broker can choose from many service combinations, but has limited human resources with critical time to market, it is essential to prioritize some of the service bundles, markets, services, and internet software providers. The purpose of this paper is to facilitate this kind of decision. Moreover, both the time and resources required for creating service offerings and the customers' demand for these service bundles are subject to uncertainty. Because of this uncertainty, a cloud broker needs to be guided to potential service portfolios that give the best trade‐off between risk and profitability. Our model helps the decision maker to identify efficient service portfolios, ie, service portfolios that for a given risk have the highest profitability or for a given profitability have the lowest risk. Our paper shows the application of this model to a cloud broker that mediates mainly software as a service bundled with mobile subscriptions for telephony (calling and messaging) and internet access. The model is inspired by the ideas from financial portfolio optimization and product‐mix decisions under scarce resources. The model corresponds to a linear stochastic optimization problem with an objective function that balances risk and profitability.

International Journal of Production Research 56(5) p. 1904-1917 Doi: https://doi.org/10.1080/00207543.2016.1275870

Target costing is a modern approach applied during product development that defines cost targets for products and its components. These cost targets are driven by customer requirements and achievable revenues. The intention of this paper is the integration of target costing with modern concepts of modelling uncertainty and management of risk based on optimisation. Contrary to the traditional focus of target costing on cost targets, this paper prefers a strategy for achieving a target profit. Moreover, in this paper target costing is understood as a continuous process with incremental changes of cost drivers, product and component design as well as product prices. Therefore, the change in costs and profit with respect to aforementioned control parameters is modelled by linear approximations. Hence, improved decisions concerning design and prices are derived by linear programming models. In practice, information concerning product and component costs, demand or customer preferences are not given with certainty. Therefore, we apply a stochastic programming approach to manage the risk inherent in the target costing process. After a general presentation, we apply our approach to the provision of an information and communication technology service where the level of uncertainty is considerable.

Cost Management 31(3) p. 39-47 Doi: https://doi.org/10.2139/ssrn.1883099

Bred og spiss! NTNU Handelshøyskolen 50 år: En vitenskapelig jubileumsantologi p. 193-217

Aktuelle lærebøker foreslår en standardformel for translasjonen mellom ugiret og giret egenkapital- eller totalkapitalavkastningskrav basert på Modigliani og Miller (1963). Parametere som inngår i denne formelen, er gjeldsgraden, skattesatsen og gjeldsrenten. Denne formelen er avledet under strenge forutsetninger, blant annet at kontantstrømmen er en evig stasjonær annuitet. Samtidig inneholder lærebøker eksempler og øvingsoppgaver der formelen er brukt for kontantstrømmer med endelig levetid. Dette fører imidlertid til feilaktig beregning av egenkapital- eller totalkapitalverdien i tillegg til at verdsettelsesresultater ikke er konsistente ved den samtidige anvendelsen av egenkapital-, totalkapital- og den justerte nåverdimetoden. Formålet med dette bidraget er å utvikle en translasjonsformel for et spesifikt verdsettelsestilfelle der gjeldsbetjeningen er fastsatt på forhånd og kontantstrømmen har begrenset levetid. Dette er praktisk relevant, spesielt i sammenheng med verdsettelsen av prosjekter eller i tilfelle der en bedrifts kontantstrøm deles opp i flere forskjellige planperioder. Med den her utledete formelen vil en observere at translasjonen mellom ugiret og giret avkastningskrav vil være avhengig av lånets nedbetalingskarakteristikk, noe som ikke er tilfelle i lærebokformelen eller alternative formler i forskningslitteraturen. Videre skal dette bidraget fremme forståelsen om den generelle avledningen av totalkapitalavkastningskravet og formelen som oversetter ugiret til giret egen- eller totalkapitalavkastningskrav.

Bred og spiss! NTNU Handelshøyskolen 50 år: En vitenskapelig jubileumsantologi p. 155-173

Artikkelen ser på kostnadsfordeling og utarbeidelse av kalkyler under usikkerhet og risiko. Konkret benyttes et eksempel basert på aktivitetsbasert kalkulasjon. Først beregnes aktivitetssatser og produktkostnader under usikkerhet når det ikke foreligger risikopreferanser. Dersom prisene settes større eller lik produktkostnadene, så vil bedriften oppnå en forventet fortjeneste større eller lik null. Dette utelukker ikke risikoen for at fortjenesten for noen tilfeller kan være negativ. Vi foreslår en metode for å håndtere denne risikoen ved bruk av en risikopremie. Vi viser at bruk av stokastiske fremfor deterministiske inngangsdata bidrar til økt bevissthet rundt kostnadsallokering, samt gir mer presise kalkyler. Metoden utvider først og fremst de deterministiske modeller som presenteres i lærebøkene, men kan også bidra til mer presise beslutninger for en kostnadsbasert prissetter. De beskrevne simuleringer er en effektiv måte å beregne den alternativkostnad som risiko innebærer.

2015 IEEE Conference on Computer Communications (INFOCOM) p. 1373-1381 Doi: https://doi.org/10.1109/INFOCOM.2015.7218514

The dependability of ICT systems is vital for today's society. However, operational systems are not fault free. Providers and customers have to define clear availability requirements and penalties on the delivered services by using SLAs. Fulfilling the stipulated availability may be expensive. The lack of mechanisms that allow a fine control of the SLA risk may lead to over-dimension the provided resources. Therefore, a relevant question for ICT service providers is: How to guarantee the SLA availability in a cost efficient way? This paper studies how to combine different fault tolerant techniques with different costs and properties, in order to economically fulfill a given SLA requirement. GEARSHIFT is a mechanism that enables ICT providers to set the fault tolerance technique (gear ratio) needed, depending on the current service conditions and requirements. We illustrate how to use the proposed model in a backbone network scenario, using measurements from a production national network. Finally, we show that the total costs of delivering an ICT service follow a simple convex function, which allows an easy selection of the optimal risk by tuning properly the combination of fault tolerant techniques.

Computational Management Science 11(4) p. 531-562 Doi: https://doi.org/10.1007/s10287-013-0201-7

Proceedings — 2011 IEEE International Conference on Services Computing • SCC2011 p. 386-393 Doi: https://doi.org/10.1109/scc.2011.100

This paper develops a combined simulation and optimization model that allows to optimize different service pricing strategies defined on the social networks under uncertainty. For a specific reference problem we consider a telecom service provider whose customers are connected in such network. Besides the service price, the acceptance of this service by a given customer depends on the popularity of this service among the customer's neighbors in the network. One strategy that the service provider can pursue in this situation is to stimulate the demand by offering the price incentives to the most connected customers whose opinion can influence many other participants in the social network. We develop a simulation model of such social network and show how this model can be integrated with stochastic optimization in order to obtain the optimal pricing strategy. Our results show that the differentiated pricing strategies can increase substantially the revenue of a service provider operating on a social network.

International Week 2025

Digital Finance Doi: https://doi.org/10.1007/s42521-025-00130-x

Forum for økonomibibliotekarer (FBØ)

Kost og nytte på økonomibiblioteket

Finance & Business Analytics Conference

NTNU Business School Conference

13. IBZ Symposium

Plentiful evidence exists concerning the financial underperformance of major sports events, and it seems that this problem does not go away. This is confirmed by our research, where we look at empirical data from four major sports events hosted in Norway over a time span of 23 years: The 1994 Lillehammer Winter Olympics, the 2011 FIS World Skiing Championship, the 2014 FIDE Chess Olympiad and the 2017 UCI World Road Cycling Championships. All these events suffered financially. This paper aims at identifying and explaining some essential factors why major sports events continually generate significant financial deficits in the form of cost overruns or underachieved revenues. We identify the following factors: (a) the awarding mechanism of major sport events; (b) exaggerated focus on legitimizing the event; (c) soft budgets; (d) disturbed cost responsibility; (e) interference by political interests; (f) financial, reputational, or political lock-in; (g) insufficient robustness of the event organization; and (h) insufficient knowledge sharing and transfer. Study data were collected from 66 semi-structured interviews and different types of documents.

NTNU Business School Conference 2019

12th EIASM WORKSHOP ON THE CHALLENGES OF MANAGING THE THIRD SECTOR

27th EUROPEAN SPORT MANAGEMENT CONFERENCE

NTNU: Center for Sport and Culture Management Research

Workshop and PhD Seminar in Management Accounting and Control

ICSP 2016: XIV International Conference on Stochastic Programming

This paper represents a model for managing the service portfolio of a cloud broker. More precisely, we presume a cloud broker that operates a platform for integrating, aggregating and sales of cloud services. The cloud broker faces a limited amount of human resources which are necessary to deal with the legal, technical and economic activities that are required for this kind of endeavor. Hence, the cloud broker needs to decide which services, service bundles and markets to focus on. For this situation we develop an optimization problem that can be used to select the service program with the highest profit potential. Moreover, sales numbers, service prices and resource usage cannot be estimated with certainty, which implies the risk of missing financial and operational targets. The model therefore allows for balancing the expected profit against this risk. The resulting model can be classified as a combined stochastic assignment and knapsack-problem with several capacity constraints. The paper points out the short comings of traditional activity based management for this kind of practical problem.

12th Annual Conference for Management Accounting Research

Telektronikk p. 76-94