Economics, and in particular, financial economics provide rigorous theoretical tools for valuing
assets The theory is unambiguous in stating that the value of an asset depends on the cash flow
actually received by investors, not on the cash flows that could be received If excess cash is
retained within the firm, it may be invested in zero- or nonzero-NPV activities. If it is invested
in zero-NPV activities and their full present value is distributed to shareholders then the use of potential dividends is equivalent to the use of
actual net payments to shareholders. If it is invested in nonzero-NPV investments, one is bound
to explicitly forecast the payout policy of the firm, to avoid to overstate the firm’s value.