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Politics : Formerly About Advanced Micro Devices
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To: Reginald Middleton who wrote (28741)2/24/1998 11:18:00 AM
From: Kevin K. Spurway  Read Replies (2) of 1572745
 
Re: "This should reveal you for the charlatan that you appear to be. You have two companies with the ability to generate $100 of future cash flows as discounted to present value. Company A has 2 billion dollars of gold assets in its coffers, company B has nothing but the $100 worth of expected cash flows.

Do you really mean to tell me that you would value these two companies as equals?"

I would if there were no possibility of liquidating either company. As Albert correctly pointed out, however, "the correct definition of fair value is: Max(liquidation value, pv of distributable earnings)."

In the real world, since Company A in your example is subject to bring bought out, taken over, and broken up, its market cap would undoubtedly be higher than Company B.

Kevin
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