Chapter 13 Corporate financing decisions and ECM S 13.1 Should financing decisions create value In the earlier parts of this book, we have learn how to evaluate project with NPV. Typical financing decisions include how much, what type and when for the debt and equity to sell Though the procedure for evaluating financing decisions is identical to the procedure for evaluating projects, the results are different. It turns out that the typical firm has many more capital-expenditure opportunities with positive NPv. Though this dearth of profitable financing opportunities will be examined in detail later. a few remarks are in order now
Chapter 13 Corporate— financing decisions and ECM 13.1 Should financing decisions create value? In the earlier parts of this book, we have learn how to evaluate project with NPV. Typical financing decisions include how much, what type and when for the debt and equity to sell. Though the procedure for evaluating financing decisions is identical to the procedure for evaluating projects, the results are different. It turns out that the typical firm has many more capital—expenditure opportunities with positive NPV. Though this dearth of profitable financing opportunities will be examined in detail later, a few remarks are in order now
Chapter 13 Corporate financing decisions and ECM S Fool investors Reduce costs or increase subsidies Create a new security
Chapter 13 Corporate— financing decisions and ECM – Fool investors – Reduce costs or increase subsidies – Create a new security
Chapter 13 Corporate financing decisions and ECM S Random walking theory As so often the case with important ideas, the concept of efficient capital markets stemmed from a chance discovery. In 1953, Maurice Kendall, a British statistician presented a controversial paper to the royal statistical Society on the behavior of stock and commodity price. He had expected to find regular price cycles, but to his and commodities seemed to follow a random walk tock to surprise they did not seem to exist. Each series appeared be a wandering one. In other words, the prices of The movement of stock prices from day to day do not reflect any pattern
Chapter 13 Corporate— financing decisions and ECM • Random walking theory As so often the case with important ideas, the concept of efficient capital markets stemmed from a chance discovery. In 1953, Maurice Kendall, a British statistician presented a controversial paper to the Royal Statistical Society on the behavior of stock and commodity price. He had expected to find regular price cycles, but to his surprise they did not seem to exist. Each series appeared to be a wandering one. In other words, the prices of stocks and commodities seemed to follow a random walk. – The movement of stock prices from day to day DO NOT reflect any pattern
Chapter 13 Corporate financing decisions and ECM S Coin Toss game head head 106.09 103 Tail l00.43 100 Tail head l00.43 97.5 Tail 95.06 In this game, if it comes up head, you win 3percent of your invest, if it tails you lose 2.5 percent of you investment
Chapter 13 Corporate— financing decisions and ECM Coin Toss Game In this game, if it comes up head, you win 3percent of your invest, if it tails you lose 2.5 percent of you investment. 100 Head Tail 103 97.5 head head Tail Tail 106.09 100.43 100.43 95.06
Chapter: 13 Corporatefinancing decisions andECM'nI 13.2 Capital market efficiency A question that has received particular attention is whether price adjust quickly and correctly when new information arrives. A market is said to be efficient if this is the case In an efficient capital market, current market prices fully reflect available information Efficient capital market is the market in which security price reflect available information Price behavior in an efficient market To illustrate how price behavior in an efficient market, suppose the X corporation has developed a new production. Xs capital budgeting analysis suggests that
Chapter 13 Corporate—financing decisions and ECM 13.2 Capital market efficiency A question that has received particular attention is whether price adjust quickly and correctly when new information arrives. A market is said to be “efficient” if this is the case. In an efficient capital market, current market prices fully reflect available information. Efficient capital market is the market in which security price reflect available information. – Price behavior in an efficient market To illustrate how price behavior in an efficient market, suppose the X corporation has developed a new production. X’s capital budgeting analysis suggests that