Revealed Preference : Theory and Examples
Many people have a poor understanding of their motivations and values. They will say that charm pricing is stupid, and may round up prices in their head. These people have no idea what they really value. But if you know them well, you can use revealed preference to make a better decision about the purchase of a charm. In...
Liquidity Event
What is a liquidity event and why do companies undergo them A liquidity event is a situation in which a company's assets are converted into cash. This can happen through an IPO (initial public offering), the sale of the company, or the purchase of the company by another entity. There are several reasons why companies might choose to undergo a liquidity...
Operating Expense Ratio
How to Calculate an Operating Expense Ratio You should ask the seller to provide a prior year's operating statement and calculate the Operating Expense ratio. Total operating expenses are property taxes, management fees, utilities, insurance, marketing, and salaries. Depreciation is deducted because it is non-cash. Then, divide these numbers by the number of vacant rooms in the building. The result...
Closed Economy
What is a closed economy A closed economy is an economic system in which trade between countries is restricted by tariffs, quotas, or other forms of regulation. In a closed economy, the production and consumption of goods and services are primarily determined by the domestic market, rather than the global marketplace. This can lead to greater self-sufficiency and a smaller...
Liquidity Premium
What is the liquidity premium and why do investors demand it The liquidity premium is the return that investors expect for holding a liquid asset over a less liquid one. In other words, it is the compensation that investors demand in order to hold an asset that can be quickly and easily sold, as opposed to one that may be...
Horizontal Equity
What is horizontal equity and why is it important Horizontal equity is the principle that people who are in the same situation should be treated equally. This principle is often applied to issues of taxation, but it can also be relevant to other areas of public policy. For example, horizontal equity would dictate that two people who earn the same...
7 Easy Tips For Saving On Your Mortgage
When buying a home, most people opt to finance the purchase through a mortgage. Although many people choose a mortgage to finance a home purchase, some who have cash choose a mortgage over cash purchases and retain the money for emergencies or investments. Even with these benefits, taking a mortgage isn't an easy decision. A quick calculation of the amount...
How to Determine Your Borrowing Base
When determining borrowing base, it is crucial to understand the valuation of your business' inventory and equipment. Typically, this valuation is based on the current market value of the inventory or equipment, which is the value the inventory and equipment would command if sold today. Lenders may require an on-site inspection of your business premises to determine the exact...
Declaration of Trust
What is a Declaration of Trust and what are its benefits A Declaration of Trust is a legal document that sets out how a property is to be owned and/or occupied. It can be used in a number of different situations, but is particularly useful when two or more people own a property together and want to set out their...
Overhead Rate
How the Overhead Rate is Calculated The overhead rate on a company's income statement and balance sheet impacts the company's cost of goods sold. Investopedia has provided a handy overhead rate calculator, which you can use to calculate your own overhead rate or use the online version. Here is a breakdown of how the overhead rate is calculated: Calculation of overhead...