Dear Salvador,
There is a difference between market value accounting and accounting. Market value accounting does not exist. It is just a conceptual framework to understand Modigliani Miller.
Having said that, the 800,000 should be in both accountings. Let's go loosely through the normal accounting:
* Issue equity
----> Cash 800,000 [Assets]
----> Equity 800,000
because investors gave cash in exchange of shares
* Invest in the project
------> Machine: 800,000 [Assets]
------> Cash: (-800,000) [Assets]
That's it. The firm has 1.8M Assets and 1.8M Equity
The value accounting is different because it recognizes that the machine will produce a positive NPV. This extra value we add to Assets. Someone has to own that value; therefore, either the value of equity or the value of debt should increase. In this case, we only have equity, so their value must increase since they are the ones getting the cash flows.
There is a difference between market value accounting and accounting. Market value accounting does not exist. It is just a conceptual framework to understand Modigliani Miller.
Having said that, the 800,000 should be in both accountings. Let's go loosely through the normal accounting:
* Issue equity
----> Cash 800,000 [Assets]
----> Equity 800,000
because investors gave cash in exchange of shares
* Invest in the project
------> Machine: 800,000 [Assets]
------> Cash: (-800,000) [Assets]
That's it. The firm has 1.8M Assets and 1.8M Equity
The value accounting is different because it recognizes that the machine will produce a positive NPV. This extra value we add to Assets. Someone has to own that value; therefore, either the value of equity or the value of debt should increase. In this case, we only have equity, so their value must increase since they are the ones getting the cash flows.