Theories of Finance
Dividend Theory
Dividends increase and borrowing constant--> Financial GAP
Raising Equity
Reduce value existing shares
Perfect competition dividend policy is irrelevant
Value of Bonds
Discounted Cash Flow (DCF)
Applies discounting factors to each future expected CF
Net Present Value (NPV)
Evaluate amount that worth between present and terminal value
Money now is worth more than money in the future
Efficient Market Hypothesis
Strong form
All information is reflected in share price
Semi-strong form
Published information is included in share price
Weak Form
Price moves are random and no controlled by past trends
Cost of Capital
WACC
Average Costs of debt and cost equity
Cost of Equity
Capital asset pricing model
Investor dont recive returns for taking risks
required return of investment
Market risk
Risk free rate
Simple dividend growth model
Mixture dividends and capital gain
Dividend payout and reinvestment constant
Cost of Debt (Kd)
Is based on the current market rate for debt of that risk level.
Kd= (1-t)
