test 1 notes - Capital budgeting decisions decision that...

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- How assets are valued - How to move money through time - What is relevant in making business decisions Shareholders wealth = market price per share of common stock x number of shares outstanding 10 principles that form the foundations of financial management: 1) The risk-return of trade-off – we won’t take on additional risk unless we expect to be compensated with additional return 2) The time value of money 3) Cash is king – measuring the timing of costs and benefits 4) Incremental cash flows – it’s only what changes that counts 5) The curse of competitive markets – why it’s hard to find exceptionally profitable projects 6) Efficient capital markets – the markets are quick and the prices are right 7) The agency problem – managers won’t work for the owners unless it’s in their best interest 8) Taxes bias business decisions 9) All risk is not equal – some risk be diversified away and some cannot 10) Ethical behavior is doing the right thing, and ethical dilemmas are everywhere in finance Proprietorship – one person owns, holds title and is legally responsible Advantages: o Easy to establish o Low organizational costs Disadvantages: o Unlimited legal responsibility for obligations o Difficulty in raising capital o Difficulties in transfer of ownership
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test 1 notes - Capital budgeting decisions decision that...

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