If new zambian equity market provides sufficient

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If new Zambian equity market provides sufficient liquidity and price discovery, it will increase the variety of saving methods to Zambian people If investments in equity market are liquid, then investors will channel their investments to the more productive sectors of the economy instead of just sitting there and holding CDs Even in more developed countries, there aren’t many small investors in equity markets- hard to say if this would work My above answers are incorrect Zambians would invest outside of country to diversify if they are rich citizens therefore, foreign institutional investors will invest in the public issue C. Read “ Financing intangible capital ” (Item 15.4) and answer the following: 1. What is intangible capital? Why has it been increasing in importance relative to tangible capital? Why is it harder to value than tangible capital? Intangible capital- things that are not physical properties of the business o Software, data, market analysis, scientific research, training, design, products, and exploration o Companies who focus on tangible capital rely of debt to finance o Intangible capital relies more on equity or retained earnings Increased importance- o Price of computers and software’s have dramatically decreased o The cost of production is lowered o In general, we need more technology and intangible assets to have a productive business Why harder to value- (and harder to sell) o They’re non-rival (one person’s use doesn’t affect another’s) o Little market value (cost of producing them is almost entirely sunk) o Positive spillovers (benefit people other than the producer) o Exhibit synergies (work more effectively when combined) It doesn’t have a market price Isn’t separable from company 2. Why does investment in intangible capital reduce a firm’s profits compared to investment in tangible capital? Increase the ratio of market value to book value? Why do countries that invest more in intangible capital have less GDP growth?
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Profits- o Because intangible investments are counted as expenses (as required by the GAAP), even though intangible investments make a firm more productive- the value of intangible assets are being understated Ratio of market value to book value- market value takes into account the asset, the book value does not o Intangible assets have little market value but a bigger impact on the “book” value because they allow for greater productivity o The more intangibles you have, the less debt-to-book value you will have, this means these companies are not able to borrow at low costs Invest more in intangible capital have less GDP growth- o Like the issue with profits, intangible investments are treated as production costs (rather than investment) thereby understating the gross and net growth 3. Why is financing intangible capital with debt a problem? Is it suited to the bond market? Bank loans?
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