User:Amarsanaa Davaadorj/Fisher separation theorem

In economics, the Fisher separation theorem states that primary goal of company's management is to maximize its net present value, regardless of its shareholders and owners. The optimal investment decision can be separated from individual's utility. "Fisher separation theorem is also known as portfolio separation theorem"  The Fisher separation theorem illustrates that: Fisher separation theorem states that managers of successful corporate ignore shareholders' decision and go for maximum value in perfect capital market. In presence of perfect capital market, the investment and consumption decisions are independent.  Important assumption for Fisher separation theorem existence: Fisher showed the above as follows:
 * the firm's investment decision is independent of the consumption preferences of the owner
 * in method of NPV maximization, the investment decision is independent of the financing decision
 * the value of a capital project (investment) is independent of the mix of methods – equity, debt, and/or cash – used to finance investment owner
 * Capital markets are perfect
 * 1) Agents are perfectly rational and they pursue utility maximization.
 * 2) There are no direct transaction costs, regulation or taxes, and all assets are perfectly divisible.
 * 3) Perfect competition in product and securities markets.
 * 4) All agents receive information simultaneously and it is costless.
 * An arbitrary number of agents are endowed with some initial good. This good may either be consumed today or be invested today and transformed into consumption tomorrow
 * The agents have different but monotonous preferences, and they exhibit decreasing marginal utility
 * 1) The firm can make the investment decision — i.e. the choice between productive opportunities — that maximizes its present value, independent of its owner's investment preferences.
 * 2) The firm can then ensure that the owner achieves his/her optimal position in terms of "market opportunities" by funding its investment either with saved or borrowed funds. at this rate, an individual invests up to his/her Marginal rate of Substitution.