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Fisher Separation Theorem





The Fisher Separation Theorem states that:
  • the firm's Investment Decision is independent of the preferences of the owner;

  • 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 the project.



Fisher showed the above as follows:
#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.
#The firm can ''then'' ensure that the owner achieves his optimal position in terms of "market opportunities" by funding its investment either with borrowed funds, or internally as appropriate.


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