
Contents
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Purpose of This Book Purpose of This Book
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The Poorly Understood Concept of a Business The Poorly Understood Concept of a Business
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Filling the Gap: The Definition of the Firm Filling the Gap: The Definition of the Firm
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Filling the Gap: The Value of a Firm Filling the Gap: The Value of a Firm
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Colliding with Widely Accepted Notions Colliding with Widely Accepted Notions
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Matching Business Theories to Actual Business Conditions Matching Business Theories to Actual Business Conditions
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Other Unique Aspects of This Book Other Unique Aspects of This Book
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Limitations Limitations
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My Motivation My Motivation
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Suggested Reading Plans Suggested Reading Plans
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General Reader General Reader
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Scholar in Finance, Mathematics, or Economics Scholar in Finance, Mathematics, or Economics
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Advanced Valuation Practitioner Advanced Valuation Practitioner
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Solutions Manual and Additional Resources Solutions Manual and Additional Resources
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Acknowledgments Acknowledgments
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Cite
Extract
Purpose of This Book
The Poorly Understood Concept of a Business
Despite the enormous literature on corporate finance, accounting, economics, management, and mathematics, two fundamental principles of business remain poorly understood: the definition of the firm and the determination of its value.
Without grasping the purpose of the firm—or naively assuming that it exists to “maximize profits” in some ill-defined way—one cannot understand how a business has market value, or how managers operate it in the face of uncertainty. Furthermore—especially given the daunting statistics on the failure rate of newly formed companies—we cannot hope to understand why an entrepreneur would start one!
Filling the Gap: The Definition of the Firm
This book attempts to fill the yawning gap between the extant theories of business and business value and the reality faced by business managers, investors, and entrepreneurs. To do so, it starts from a fundamental question: What is a firm?
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