conclusion what we do and do not know about finance

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1、confirmingpagesPART11CHAPTER"""""34CONCLUSIONConclusion:WhatWeDoandDoNotKnowaboutFinance!Itistimetosignoff.Letusfinishbythinkingaboutsomeofthethingsthatwedoanddonotknowaboutfinance."""""34-1WhatWeDoKnow:TheSevenMostImportantIdeasinFinanceWhatwouldyousayifyouwereaskedtonamethesevenmostimportanti

2、deasinfinance?Hereisourlist.1.NetPresentValueWhenyouwishtoknowthevalueofausedcar,youlookatpricesinthesecondhandcarmarket.Similarly,whenyouwishtoknowthevalueofafuturecashflow,youlookatpricesquotedinthecapitalmarkets,whereclaimstofuturecashflowsaretraded(remember,thosehighlypaidinvestmentbankersa

3、rejustsecondhandcash-flowdealers).Ifyoucanbuycashflowsforyourshareholdersatacheaperpricethantheywouldhavetopayinthecapitalmarket,youhaveincreasedthevalueoftheirinvestment.Thisisthesimpleideabehindnetpresentvalue(NPV).Whenwecalculateaninvestmentproject’sNPV,weareaskingwhethertheprojectisworthmor

4、ethanitcosts.Weareesti-matingitsvaluebycalculatingwhatitscashflowswouldbeworthifaclaimonthemwereofferedseparatelytoinvestorsandtradedinthecapitalmarkets.ThatiswhywecalculateNPVbydiscountingfuturecashflowsattheopportunitycostofcapital—thatis,attheexpectedrateofreturnofferedbysecuritieshavingthes

5、amedegreeofriskastheproject.Inwell-functioningcapitalmarkets,allequivalent-riskassetsarepricedtoofferthesameexpectedreturn.Bydiscountingattheopportunitycostofcapital,wecalculatethepriceatwhichinvestorsintheprojectcouldexpecttoearnthatrateofreturn.Likemostgoodideas,thenetpresentvalueruleis“obvio

6、uswhenyouthinkaboutit.”Butnoticewhatanimportantideaitis.TheNPVruleallowsthousandsofshareholders,whomayhavevastlydifferentlevelsofwealthandattitudestowardrisk,toparticipateinthesameenterpriseandtodelegateitsoperationtoaprofessionalmanager.Theygivethemanageronesimpleinstruction:“Maximizenetpresen

7、tvalue.”866bbre30735_ch34_866-875.indd866re30735_ch34_866-875.indd866112/17/093:08:07PM2/17/093:08:07PMconfirmingpagesChapter34Conclusion:WhatWeDoandDoNotKnowaboutFinance8672.TheCapitalAssetPricingModelSomepeoplesaythatmodernfinan