Financial issues » money

Simultaneous Death

admin — Mon, 13 Jul 2009 18:50:49 +0000

The will may provide that testator’s spouse shall be presumed to have survived the testator if both should die in a common disaster under circumstances that make it uncertain who died first. If the will does not contain such a simultaneous death clause, Oklahoma’s statute (Title 58, Oklahoma Statutes Annotated, Section 1001) directs that in event of such common disaster causing the simultaneous death of both husband and wife, it shall be ruled by the court that neither spouse shall have survived the other. The estate of each then would pass to his or her respective heirs or in accordance with their respective wills. The statute would disqualify the marital deduction savings on federal estate taxes if this provision is not included.

General Provisions Applying to All Wills

admin — Sun, 12 Jul 2009 17:25:22 +0000

General provisions that apply to all types of wills include:
• A spouse may dispose of all his or her separate estate by will, without the consent of the other spouse.
• A will cannot take precedence over:
1. A written antenuptial agreement. An antenuptial agreement is one made up between a man and woman prior to their marriage in which each agrees upon death of the other to take less property or different interest than which the law allows the surviving spouse.
2. A spouse’s elective share. The amount of property a spouse may receive under the laws of succession cannot be reduced by will without approval of the surviving spouse. If by chance this happened, the surviving spouse could elect to receive property under the state laws of succession which would, in effect, invalidate the distribution provisions to him or her under the will.

Financial Statements

admin — Mon, 08 Jun 2009 18:55:52 +0000

We already know that the value of our ﬁrm is determined by its underlying projects. We already know that these projects have cash ﬂows that we use in our NPV analyses. So, why should you bother with learning about what companies say in their ﬁnancials? A rose is a rose is a rose, isn’t it? The projects and thus the ﬁrm have the same value no matter what we report.
Yes and no. There are many good reasons why you should understand ﬁnancial statements:
1. If you want to have an intelligent conversation with someone else about corporations, you must understand the language of accounting. In particular, you must understand what earnings are—and what they are not.
2. Subsidiaries and corporations report ﬁnancial statements, designed by accountants for accountants. They rarely report the exact cash ﬂows and cash ﬂow projections that you need for PV discounting. How can you make good decisions which projects to take if you cannot understand most of the information that you will ever have at your disposal?
3. It may be all the information you will ever get. If you want to get a glimpse of the operation of a publicly traded corporation, or understand its economics better, then you must be able to read what the company is willing to tell you. If you want to acquire it, the corporate ﬁnancials may be your primary source of information.
4. The IRS levies corporate income tax. This tax is computed from a tax-speciﬁc variant of the corporate income statement, which relies on the same accounting logic as the published ﬁnancials. (The reported and tax statements are not the same!) Because income taxes are deﬁnite costs, you must be able to understand and construct ﬁnancial statements that properly subtract taxes from the cash ﬂows projected from projects when you want to compute NPV. And, if you do become a tax guru, you may even learn how to structure projects to minimize the tax obligations.
5. Many contracts are written on the basis of ﬁnancials. For example, a bond covenant may require the company to maintain a price-earnings ratio above 10. So, even if a change in accounting rules should not matter theoretically, such contracts can create an inﬂuence of the reported ﬁnancials on your projects’ cash ﬂows.
6. There is no doubt that managers care about their ﬁnancial statements. Managerial compensation is often linked to the numbers reported in the ﬁnancial statements. Moreover, managers can also engage in many maneuvers to legally manipulate their earnings. For example, ﬁrms can often increase their reported earnings by changing their depreciation policies (explained below). Companies are also known to actively and expensively lobby the accounting standards boards. For example, in December 2004, the accounting standards board ﬁnally adopted a mandatory rule that companies will have to value employee stock options when they grant them. Until 2004, ﬁrms’ ﬁnancial statements could treat these option grants as if they were free. This rule was adopted despite extremely vigorous opposition by corporate lobbies, which was aimed at the accounting standards board and
Congress. The reason is that although this new rule does not ask ﬁrms to change projects, it will drastically reduce the reported net income (earnings) especially of technology ﬁrms. But why would companies care about this? After all, investors can already determine that many high-tech ﬁrms (including the likes of Microsoft a few years ago) may have never had positive earnings if they had had to properly account for the value of all the stock options that they have given. This is a big question. Some behavioral ﬁnance researchers believe that the ﬁnancial markets value companies as if they do not fully understand corporate ﬁnancials. That is, not only do they share the common belief that ﬁrms manage their earnings, but they also believe that the market fails to see through even mechanical accounting computations. Naturally, the presumption that the ﬁnancial markets cannot understand accounting is a very controversial hypothesis—and, if true, this can lead to all sorts of troublesome consequences.
For example, if the market cannot understand ﬁnancials, then managers can legally manipulate their share prices. A ﬁrm would especially beneﬁt from a higher share price when it wants to sell more of its shares to the public. In this case, managers could and should maneuver their ﬁnancials to increase their earnings just before the equity issue. There is good evidence that ﬁrms do this—and also that the ﬁnancial markets are regularly disappointed by these ﬁrms’ performances years after their equity issues.
Even more troublesome, there is also evidence that managers do not take some positive NPV projects, if these projects harm their earnings. Does this sound far-fetched? In fact, in a survey of 401 senior ﬁnancial executives Graham, Harvey, and Rajgopal found that 55% would delay starting a project and 80% would defer maintenance and research spending in order to meet earnings targets. Starting projects and doing maintenance and R&D are presumably the right kind of (positive NPV) projects, so not taking them decreases the underlying real value of the ﬁrm—even though it may increase the ﬁnancial image the ﬁrm projects.

Importance of Legal Assistance

admin — Tue, 14 Apr 2009 17:26:56 +0000

By all means, consult a lawyer in planning and writing your will. If your will is not executed as the law prescribes, or if it attempts to do illegal things, it may be declared invalid. An untrained person is likely to use inaccurate or ambiguous language in drawing his will that when contested would be subject to the interpretation of the courts.
A lawyer is equipped by training and experience to help accomplish what you desire. Tell your lawyer what you want done and allow him to put your wishes into draft form and have him explain the language and effect to you. Careful thought should be given in drafting a will. Remember, at the time the will goes into effect, you will not be around to explain what you meant to say.

Changing or Correcting a Will

admin — Sun, 12 Apr 2009 17:25:35 +0000

A supplement to a will, consisting of revisions, additions, or alterations made after the will has been made, is known as a codicil. The codicil must be executed (signed, witnessed, etc.) in the same manner as the will being amended. Corrections should not be made in a will by erasures, insertions, or cross-outs. All corrections or other changes should be made by codicil and in many cases it may be preferable to execute a new will.
If a new will is made, it should state that all prior wills are revoked. It may also be desirable to physically destroy a previous will to avoid any possible confusion later.