Chapter 25

Fundamentals of
Corporate What We Do and Do Not
Finance Know About Finance
Fifth Edition

Slides by
Matthew Will

McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
25- 2

What We Know

Net Present Value

Risk and Return
Efficient Capital Markets
MM’s Irrelevance Propositions
Option Theory
Agency Theory

McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved
25- 3

What We Do Not Know

 What determines project risk and PV ?

 Risk and return - Have we missed something?
 Are there important exceptions to the efficient market
theory?
 How can we explain capital structure?
 How can we resolve the dividend controversy?
 How can we explain merger waves?
 What is the value of liquidity?

McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved