Fisher Separation Theorem:
Underlying assumptions of theorem:
These limits its usefulness in financial decisions-making, the theorem assumes that the capital markets are perfect and the information that is floating out is clear and known to everyone. This helps the managers to take the financial decisions and create the investment decisions for the firm, the theorem also assumes that there are only two periods (present and future); this clearly confirms that the firm should always focus on the current and long-term objectives. The theorem also clearly talks about investment decisions that are made by the firm shouldn't focus in satisfying the shareholders objectives, but it should focus on its core business which in turn increase the firms NPV and will be helpful to the shareholders to increase their returns. The theorem also help to evolve another theorem call M and M approach, which talks about how effective is giving the dividends to the shareholders or not giving dividends.