i think it is not right to change the cost of equity in the future, the discounting should measure the risk of future cash flows , that's the point of discounting, if i change the discount rate in year 3, i suddendly change the risk of that cashflow , the future cost of equity belongs to the future, what i care is the risk of those cashflows now discounted at the current cost of equity. That's from my understanding . If i was aiming in pricing i would use a price in year 10 based on the cost of equity in year 10 and then discount that price with current cost of equity.
If you know for a fact that your company will change its capital structure over time (after all, this is your decision as its management/shareholders), there is nothing wrong with a time-varying WACC.
What the Prof. should put more emphasis on is in my opinion the dirrefence between Investment Value and Fair (Market) Value. A lot of assumptions are applicable to one but inapplicable to the other. In Fair Value measurement, as I understand, the WACC does not change, because we take the optimal D/E ratio that a new owner of the business (being a rational market agent) would impose. In Investment Value, we can use all kinds of assumptions, such as changing the leverage.
@@Михаил-д6х1з everything that is in the future has an uncertainty, if i knew it for a fact, then this should come at a lower cost of equity now.Future cash flows are an estimate and i discount it at a current risk.I think by giving a different risk in the future, you more or less do pricing
@MyDreamside OK, say that I plan to delever my company. You're saying that it should already be priced into my expected return on equity, and in a sense you're right, IF this was public information. But information here is asymmetric, the market knows my current state, but it does not necessarily know of my plans to delever and hence reduce the risk/expected return on equity. The market does not price in future information even in the strictest definition of the EMH. Also, you're overcomplicating things. As I delever, I pay less interest. That means distributions to equity holders become more certain. That is simply it. What you're trying to say is that I cannot know today with absolute certainty if I will be able to delever or not. But then you're implying that projecting cash flows is a futile task. We have to project them. Having projected them, we then assume that some of those will be distributed to debt holders.
@MyDreamside Just to clarify. Every instance that you delever, the market updates its perception of your riskiness. It recalculates your risk as of today, but it does not know for certain of your plans to delever further, unless you announce them.
lecture starts at 4:44
7:04
from where did 120 Million come from?
Doesn't NYU have a registration numbers?
I wanted to hear the rest of the story about your hotel reservation in Mumbai!
In which class sir taught us about Cross holding?? Please Reply ASAP
I wish I had listened to the Professor when he bought tesla.
Same
i think it is not right to change the cost of equity in the future, the discounting should measure the risk of future cash flows , that's the point of discounting, if i change the discount rate in year 3, i suddendly change the risk of that cashflow , the future cost of equity belongs to the future, what i care is the risk of those cashflows now discounted at the current cost of equity. That's from my understanding . If i was aiming in pricing i would use a price in year 10 based on the cost of equity in year 10 and then discount that price with current cost of equity.
If you know for a fact that your company will change its capital structure over time (after all, this is your decision as its management/shareholders), there is nothing wrong with a time-varying WACC.
What the Prof. should put more emphasis on is in my opinion the dirrefence between Investment Value and Fair (Market) Value. A lot of assumptions are applicable to one but inapplicable to the other. In Fair Value measurement, as I understand, the WACC does not change, because we take the optimal D/E ratio that a new owner of the business (being a rational market agent) would impose. In Investment Value, we can use all kinds of assumptions, such as changing the leverage.
@@Михаил-д6х1з everything that is in the future has an uncertainty, if i knew it for a fact, then this should come at a lower cost of equity now.Future cash flows are an estimate and i discount it at a current risk.I think by giving a different risk in the future, you more or less do pricing
@MyDreamside OK, say that I plan to delever my company. You're saying that it should already be priced into my expected return on equity, and in a sense you're right, IF this was public information. But information here is asymmetric, the market knows my current state, but it does not necessarily know of my plans to delever and hence reduce the risk/expected return on equity.
The market does not price in future information even in the strictest definition of the EMH.
Also, you're overcomplicating things. As I delever, I pay less interest. That means distributions to equity holders become more certain. That is simply it. What you're trying to say is that I cannot know today with absolute certainty if I will be able to delever or not. But then you're implying that projecting cash flows is a futile task. We have to project them. Having projected them, we then assume that some of those will be distributed to debt holders.
@MyDreamside Just to clarify. Every instance that you delever, the market updates its perception of your riskiness. It recalculates your risk as of today, but it does not know for certain of your plans to delever further, unless you announce them.