2.4 The value of a firm Flashcards
1
Q
What is the value of a firm?
A
The sum of the Present Value of the CASH FLOWS generated by a firm’s individual securities
- cash flow can be equity and debt
2
Q
What are shareholders?
A
- Owners of shares in a company
- they have equity
3
Q
What are debt holders (bond holders)?
A
A holder of bonds, receiving interest payments and principal in reconciliation for their loan
4
Q
Is it safer to be a shareholder or debt holder?
A
- Debt holders are generally safer
- If company enters bankruptcy, they must first pay back their debt holders
- in liquidation, bond holders get all the money, leaving none for shareholders
