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While nature loves symmetry inasmuch as many natural laws remain invariant under various transformations, description of the natural diversity warrants some kind of breakdown of symmetry. Such a breakdown of symmetry may be either explicit or spontaneous. Many significant developments have taken place in recent times in diverse fields of study. Algorithmic information theory has been formulated by Kolmogorov and others. Spontaneous breakdown of symmetry and its use in the standard model of particle physics, discovery of the Higgs Boson are all notable events. Work of Ilya Prigogine to accommodate biological self-organisation within the ambit of the second law of thermodynamics is also quite noteworthy. According to some, his principle of minimum entropy production has added a dynamic content to the second law of thermodynamics, which otherwise is viewed as a mere kinematic constraint. It appears that non-linear dynamics and the catastrophe theory of Rene Thom can play an important role to understand a sudden qualitative change of a dynamical system triggered by certain value of a parameter. Phase change of water subjected to external heating or change from a stable economy to one marked by trade cycles are examples of such sudden transitions. Advent of econophysics and behavioural finance has facilitated a new way of looking logically at the problems of finance and economics with the help of established physical laws as well as rigorous mathematical and statistical analyses. Importance of such an approach is evident from the sad plight of Louis Bachelier. In this article, it has been our effort to link up such apparently disjoint developments from diverse fields of study within the ambit of a single logically consistent framework. [ABSTRACT FROM AUTHOR]

Mergers and acquisitions (M&As) constitute an important part of investment banks' business portfolios. While dealing with such processes, they often employ the accretion-dilution model. This model endeavours to give a tentative view about how a merger or acquisition impacts the acquirer's Earnings Per Share (EPS). Some analysts believe that an accretion of EPS would be good for the acquirer company. It is rather strange that a set of analysts, based on certain assumptions which - as per their own admission - may very well be wrong, should try to predict if a merger would be accretive or dilutive, and then conjecture that an accretive merger may augur well for the acquirer company. This exercise does not even try to explore whether such a merger would be feasible. If a merger is not feasible and cannot be implemented, there is no point trying to conjecture whether it could have been good or not for the acquirer company. In order to provide a firm footing to this concept for a systematic analysis of various M&A processes, we formulate here a consistent and comprehensive framework based on rigorous mathematical analysis. We derive necessary and sufficient conditions for Break Even Exchange Ratios for both zero and non-zero synergies and systematically study the impact of accretion-dilution on earnings, price and value. We also integrate this precise analysis with results of other M&A theories to predict and explain decisively all happenings on the ground, including the feasibility of mergers, for various kinds of scenarios. [ABSTRACT FROM AUTHOR]

Financial viability of a project is a sine-qua-non for its acceptance for implementation. Capital budgeting techniques are methods employed for evaluation of the financial viability of a project. Net present value (NPV) is a capital budgeting technique used widely by both academicians and practitioners. Some academicians appear to consider that a uniform NPV based decision criterion viz. NPV > 0 can be used for evaluation of the financial viability of both investment projects and borrowing projects. However, our analysis clearly reveals that a uniform decision criterion NPV > 0 for both investment projects and borrowing projects is not a self-consistent requirement at all. As our analysis in this article would establish, the self-consistent NPV based decision criteria for borrowing projects can be formulated as under: NPV of a single/independent borrowing project = 0. For mutually exclusive borrowing projects, among the projects with negative NPVs, select the one with the highest NPV i.e. the one with the lowest magnitude of NPV. We also propound a fundamental principle of conservation of value during financial transactions in a frictionless world. [ABSTRACT FROM AUTHOR]

In order that a project is considered acceptable for implementation, it has to satisfy the twin requirements of technical feasibility and financial viability. Financial viability of projects is evaluated by employing methods known as capital budgeting techniques. Internal rate of return (IRR) is one of the most popular capital budgeting techniques explored extensively by both practicing managers and academicians. IRR is thus a topic of paramount importance in the area of corporate finance. It appears that academicians apply the same set of decision criteria for evaluation of the financial viability of both investment projects and borrowing projects. Our analysis in this article, however, proves that a uniform set of decision criteria for both investment and borrowing projects is not at all a self-consistent requirement. The set of self-consistent IRR based decision criteria for borrowing projects can be formulated as under: 1. For any single/independent borrowing project, IRR > 0 but ≤ a suitable positive benchmark rate. 2. For mutually exclusive borrowing projects, among the projects with IRRs ≤ the positive benchmark rate, select the one with the lowest IRR. [ABSTRACT FROM AUTHOR]

Every investment project needs to be financially viable in order to be accepted for implementation. Financial viability of a project is ascertained by employing a process termed as Capital Budgeting Technique. Among the various available Capital Budgeting Techniques, IRR and NPV methods appear to be the most widely used ones. The practicing managers, particularly those from multinational companies, have a marked preference for the IRR method. However, a few issues have been raised by some researchers against IRR -- primarily on account of non-existence of IRR in certain situations and existence of multiple IRRs under some other circumstances. It also comes as a big surprise that practicing managers have such a humongous preference for a method fraught apparently with so many serious complications. While these issues have been dealt with in a consistent manner for investment projects and the condition for existence and uniqueness of IRR has been derived in a compact form, a similar task does not appear to have been undertaken for borrowing projects, where IRR is alleged to falter even more. In this article we attempt to deal with such issues and derive the condition for existence and uniqueness of IRR for borrowing projects. We also formulate certain modified decision criteria compatible with physical realities, which can help to resolve some apparent anomalies. [ABSTRACT FROM AUTHOR]

The issue of efficiency of Monetary Transmission has attracted a great deal of attention in India. RBI, the central bank and the monetary authority of the country, has come in for criticism every now and then for not doing enough to make cheaper loans available to the consumers/borrowers. For a banking system dominating the financial space and dogged by ballooning NPAs, the study of the impact of NPAs on Monetary Transmission assumes special interest. We have worked out the basic structure of the balance sheet of a commercial bank and explored the condition for a positive RONW for different levels of its NPAs. For a low range of NPAs, NIM tends to increase with increasing NPAs and impedes Monetary Transmission. For a high level of NPAs, the bank gets the PCA tag and its inability to sanction fresh loans at will affects Monetary Transmission adversely. Also, for a given positive value of RONW, we observe that any change in a bank's deposit rate has a multiplier effect on its loan rate and NIM. In other words, any hike in deposit rate would lead to a greater hike in loan rate and NIM, thereby adversely affecting Monetary Transmission. As the monetary authority of India, the principal objective of RBI is to control inflation and at the same time to try to give a boost to growth of the country's economy. For this, it brings about suitable changes in the policy rates from time to time and tries to ensure efficient Monetary Transmission through the available channels. While India has a floating exchange rate, there is apparently no evidence for an active exchange rate channel for Monetary Transmission. The interest rate channel is expected to operate as a 2 step process viz. change of policy rates leading to change of loan rates, which is to result in change of aggregate demand and rate of inflation. Of these two, while some evidence does exist for the first step, no evidence appears to have been discovered for the second by the concerned researchers. We track the movements of 1m MCLRs, introduced by RBI with effect from April 2016, for 3 public sector and 3 private sector banks over a 25 month period starting from May, 2016, and observe some reduction of MCLRs in response to reduction of REPO rate by RBI. Such movements for the 6 banks are also found to be highly correlated to one another. In sum, the study of the MCLRs does provide some evidence about the first step of the interest rate channel for Monetary Transmission being operational. Further, the method suggested by RBI for computing MCLRs of commercial banks seems to suffer from some lack of compatibility. We have indicated the modified formula for MCLR to ensure the internal consistency of the process. [ABSTRACT FROM AUTHOR]

NPV and IRR are essential components of Corporate Finance and are used for evaluating financial viability of investment projects. However, some serious issues have been raised about existence and uniqueness of IRR. While exploring such issues, we work out the necessary and sufficient condition for existence and uniqueness of IRR for any generalized scenario. Moreover, this condition is fulfilled by the projects considered by practicing managers. This explains why IRR delivers and is so popular among practicing managers. Further, certain applications of the Descartes Rule of Signs to estimate the number of IRRs are found to be erroneous. The correct approach in this regard is outlined, and it gives results consistent with our findings. Our analysis about the ranking of mutually exclusive projects reveals that, as a technique, IRR may claim a preference in this regard. [ABSTRACT FROM AUTHOR]