Corporate Finance Lecture 3.pdf

Corporate Finance Lecture 3.pdf - Signalling theory...

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Signalling theory Important theory in debts/dividends - Information asymmetries - Share price reactions - Announcements.. followed by actions. - Where the share market reacts to some kind of announcement - Actions - actions speak louder than words - Potentially/actually costly - The share price will go down, e.g. if you say that dividends will increase by 10p, and it goes down then the market expectations will be let down. If you say something, you HAVE to do what you said Asset valuation CF = cash flow PV = [CF/(1+r)^t] <<< do for all years. Discounting future cash flows back to get value today or if n > infinity and CF and r are constant PC = CF / r Present value = current worth of future cash flows Future value = Future worth of cash flows Relationship between FV and PV = FV = PV (1 + r )^t >>>>> compounding PV = FV(1+r)^t or PV = FV (1+r) ^-t >>> discounting Stock market - Primary and secondary markets
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1) Primary market for new issues of shares 2) Secondary market (second-hand market, allows transfer of securities) Advantages - Increases liquidity of shares - Generates pricing information - Barometer of corporate performance -
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