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Investors wont take additional risk unless they expect to be compensated with additional return.
PRINCIPLE 1: The risk return trade off
A dollar received today is worth more than a dollar received a year from now.
PRINCIPLE 2: Time Value of Money
It is better to recieve money earlier rather then later
The time value of Money
an unincorporated business owned by one individual.
proprietorship
CFO stands for
Chief Fianancial Officer
Investors demand higher return for taking on added risk.
The time value of money
Considering impact of taxes
Taxes bias
Manager won't work for the Firm's Owners unless it's in their best interest
The agency problem
Difficult to measur a project's and an asset's risk is very difficult.
All risk is not equal
It is necessary to understand these principles in order to understand finance
10 priciples of Financial Managment
cash flow are actually recieved by the firm and can be reinvested
Cash -not profit-is knig
Doing the right thing. Ethical dilemmas are everywhere in finance.
PRINCIPLE 10: Ethical Behavior
Some risk can be diversified away, and some cannot.
PRINCIPLE 9: All Risk is not Equal
Bias Business Decisions
PRINCIPLE 8: Taxes
The markets are quick and prices are right
Efficiant Capital markets
Why it's hard to find exceptionally profitable projects.
PRINCIPLE 5: The Curse of Competitive Markets
A problem resulting from conflicts of interest between the manager/agent and the stockholder.
PRINCIPLE 7: The Agency Problem
difference between the cash flows if the project is taken on versus what they will be if the project is not taken on.
PRINCIPLE 4: Incremental Cash Flows
An efficient market is characterized by a large number of profit-driven individuals who act independently.
PRINCIPLE 6: Efficient Capital Markets
It is cash flows not profits that are actually received by the firm and can be reinvested.
PRINCIPLE 3: CASH, not profits is KING