Justin Obciana.docx - 10 Principles of Financial Management 1 The risk return trade off Investors wont take additional risk unless they expect to be

Justin Obciana.docx - 10 Principles of Financial Management...

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10 Principles of Financial Management 1. The risk return trade off - Investors wont take additional risk unless they expect to be compensated with additional return. 2. Time Value of Money - A dollar received today is worth more than a dollar received a year from now. 3. CASH, not profits is KING - It is cash flows not profits that are actually received by the firm and can be reinvested. 4. Incremental Cash Flows - It's only what changes that counts. The incremental cash flow is the difference between the cash flows if the project is taken on versus what they will be if the project is not taken on. 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. An efficient market is characterized by a large number of profit-driven individuals who act independently. 7. The Agency Problem - A problem resulting from conflicts of interest between the manager/agent and the stockholder. 8. Taxes - Bias Business Decisions 9. All Risk is not Equal - Some risk can be diversified away, and some cannot. 10. Ethical Behavior - Doing the right thing. Ethical dilemmas are everywhere in finance.
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Forms of Organization 1. Sole Proprietorship - A sole proprietorship also referred to as a sole trader or a proprietorship, is an unincorporated business that has just one owner who pays personal income tax on profits earned from the business. A sole proprietorship is the easiest type of business to establish
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