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Proven ways to increase shareholders’ wealth:
• Find investment opportunities that beat the market
• Stop non-competitive activities
• Pay out cash
• Spin off any divisions that can stand alone
• Be acquired by another company
Beechcraft’s Play:
• Find investment opportunities that beat the market
• Stop non-competitive activities
• Pay out cash
• Spin off any divisions that can stand alone
•
Be acquired by another company
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Starship Bottom Line
• October - November 1979:
Stock traded in the 30s
• November 16th: Stock broke 40
• December 31st: Stock broke 50
• February 8, 1980: Last trading day
Closed $61.125
Acquired by Raytheon
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What do we know about finance? What major questions are still unresolved?
• How are decisions really made?
• How can we really measure NPV?
• Do we really understand risk and return?
• Are there important lapses in market efficiency?
• Why do initial public offerings seem to be undervalued?
• How are complex options valued?
• Does capital structure matter?
• Does dividend policy matter?
• What is the value of liquidity?
• Is corporate restructuring good or bad?
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What do we know about finance? What major questions are still unresolved?
• How are decisions really made?
• How can we really measure NPV?
• Do we really understand risk and return?
• Are there important lapses in market efficiency?
• Why do initial public offerings seem to be undervalued?
• How are complex options valued?
• Does capital structure matter?
• Does dividend policy matter?
• What is the value of liquidity?
• Is corporate restructuring good or bad?
Milestones in Development of NPV
Analysis
• 1899: Irving Fischer first articulates concept
NPV = Mkt value of securities minus cost of resources
• 1929: Irving Fischer, Theory of Interest
NPV is part of theory of optimal resource allocation
• 1951: Joel Dean, Capital Budgeting
Implementation of DCF methodology in current form
• 1973: Black & Scholes develop 1st Option Pricing Model
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