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15/11/22
18:46
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Originally posted by lindentree:
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nighttrayden ... I can see what's happening and I can see bungalowbills' point of view but my point is still valid... there's a bit of confusion over the pure theory of what should happen and what you actually see with market perceptions and sentiment. If shares seem to be falling in value with every new capital raise, then that contradicts the theory. A few simple rules from the Lindentree book of economics... 1. If a company has a market capitalisation of 10 mill and debts of 10mill the company has a value of 20mill . (That is the price an individual has to pay if it wants to take over the company.) 2. The market will decide if the debt is too high and adjust MC down appropriatly.... company fair value is still MC plus debt. 3. It doesn't matter what the ratio is. If debt is reduced to zero company fair value is still MC plus debt. 4. It doesn't matter how debt is reduced to zero.... by capital raise for shares, or share swap for debt, the effect is the same. (a):If someone provides 10 million cash THROUGH A CAPITAL RAISE and takes 10 million worth of new shares to eliminate debt then the company will then be in a position of having zero debt and a market capitalisation of 20 million and STILL a value of 20 mill. (b): If credit holders take 10 million worth of shares to eliminate 10 million worth of debt this is efectivelly the same as injecting cash for shares and the company still has a value of 20 million . ......................................................................................... Other than the fact that companies run on cash so (a) is a better option than (b), the effect is the same. IMO... DYOR... NOT investment advice.
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Regardless of numbers. It's only worth what the highest bidder is willing to pay.