The concept of market efficiency underpins almost all financial theory and decision models. When financial markets are efficient, the price of a security—such as a share of a particular corporation’s common stock—should be to the present value estimate of the firm’s expected cash flows discounted by its appropriate rate of return (also called the intrinsic value of the stock).

Equal to

Explanation:

When the price of a corporation's common stock is equal to the present value of discounted future cash flows, it will show a true representation of the value of the firm and in turn investors will have confidence in the company and its projected performance.

As new shares are issued from a company the company issues the shares at a forecasted future value based on the expected cash flows of the business.

For example if a company has estimated it will have cash flow of $12 million in the next one year, and it wants to issue 6 million shares. The value of the issued shares will be $12 million/6 million= $2. The firm is leveraging on it forecasted performance and cash flows.

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