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Tuesday, August 15, 2006

REALITY AND PERCEPTION

Sometimes, perception is so different from reality. You think something, perceive it as you want and it gets imprinted in your mind as your self-designed conceptual entity. This is very much applicable to the concepts of corporate finance. Before joining ISB, I always had my set of notions about concepts like “borrowing” and “lending”. I had my understanding of stuff like “bankruptcy” and “cost of capital”. But, now I realize how different my perceptions of these concepts were, from the reality.
“Corporate finance” has been deeply insightful. It brings forth the real intricacies of the corporate decision making process. Concepts which were always a half-understood phenomenon to me are now slowly evolving into their true selves. Bonds, shares, dividends, equities, debts and their roles in dictating the policies and the strategies of the corporate world is becoming more and more evident. The varieties of betas, expected returns, cost of capitals, discount rates is not very clear at the moment but things are moving in the right direction. NPV, WACC, APV calculations can be so effective in decision making.
Further interesting is the fact that, I can see a link getting developed between these concepts and the way these concepts can be applied to a ship sailing in the high seas (of course in my own imagination). A sailing ship is very much similar to a company by itself. By all possibilities, all these theories should be applicable in developing the strategies for the ship. Shipping companies buy ships, they sell ships, and when the ships sail, they depreciate. Ships are chartered…sometimes "time chartered" and at other times "spot chartered". I have a notion that NPV calculations and risk analysis must be the tools that specialists in this domain must be playing with regularly. Stocks, dividends, bonds, shareholders are so commonly used terminologies is ship finance. Finance really helps to see things from a completely different angle. Hopefully, some day I will be using these tools to decide the future of a ship.
Again, this is my perception of the industry. Reality might be different.

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