AFM373 Lecture Notes - Lecture 2: Net Present Value, Creative Destruction, Invisible Hand
3 Jul 2018
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Recall Ben and Jerry’s
Corporate objective
Product, social, economic
Likely decision criteria?
Want to maintain control after takeovers
Outsider institutional shareholders cares about profits
Outsider retail shareholders may have mixed feels
At $46/share in the takeover, what value was created for ex shareholders?
Unilever will lever the brand and product
Society got better became the winners of the transaction won more than what the losers
lost
Corporations and social welfare
Stakeholder theory:
Care about all parties
Downside:
Confused who are stakeholders and how to cater to their interests
What does Jensen mean by a “single valued” objective function?
A single value doesn’t mean ignore everything else, e.g. social and econ may feed into
product value
Price theory and Adam Smith’s invisible hand
If you let the market be free, people compete with each other and reaches competitive equilibrium.
This makes the pie the biggest and creates the most wealth.
The invisible hand of the market can do what no governments can do.
Price determines how much people value goods.
Economic profit:
e.g. if I produce a product and sells for $10, and someone else produces at $8. The
opportunity cost for me is the $8 of the other person's selling price
find more resources at oneclass.com
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Document Summary
Society got better became the winners of the transaction won more than what the losers lost. Confused who are stakeholders and how to cater to their interests. A single value doesn"t mean ignore everything else, e. g. social and econ may feed into product value. If you let the market be free, people compete with each other and reaches competitive equilibrium. This makes the pie the biggest and creates the most wealth. The invisible hand of the market can do what no governments can do. Economic profit: e. g. if i produce a product and sells for , and someone else produces at . The opportunity cost for me is the of the other person"s selling price. Resources will end up in the hands of those that can best use them. We assume consumers are rational. e. g. we spend k on iphone, that was the best possible use of that money. No body owns it, but everyone suffers if its polluted.
