BUS-F 355 Lecture Notes - Lecture 1: Preferred Stock, Fiduciary, Cash Flow
Document Summary
Fiduciary responsibility"s point is to maximize value of each share outstanding. In finance, we want market values - we care about how much things cost on the market. Market value of assets of a firm = market value of liabilities + equity of firm. To investors, these are financial assets (financial securities: claim to a cash flow, which may also provide control rights) Market value of firm"s assets is divided amongst the providers of capital (purchasers of the financial securities) Vf = market value of firm (mkt value of firm"s assets) E = equity <= fiduciary responsibility is to maximize this. Vf = d + ps + e + any other senior claims (senior to equity holders) Common shareholders - benefit = limited liability, share price can"t go below 0; residual claimants after all other claims have been paid off. Trying to value e, so e = vf - d - ps - other senior claims.
