Summary: Foundations Of Finance - The Logic And Practice Of Financial Management | 9780273789956 | Keown, et al
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Read the summary and the most important questions on Foundations of Finance - the logic and practice of financial management | 9780273789956 | Keown, Martin & Petty
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1 Financial Management and the Firm
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What is the goal of a firm?
"maximization of the shareholders wealth"
create value for the company's owners (shareholders) -
How to apply a firms goal?
Think about what effect a decision should have on the stockprices (company's value) -
What is incremental cash flow?
the difference between the cash flow before and after a change in management and Production (like investing in a new machine) -
What is an efficient market?
one where the prices of the assets traded in that market fully reflect all available information at any instant in time -
What happens when you forget the first principle of Finance?
Cash Flow is what matters -> Focussing on earnings instead of cash flow, resulting in wrong interpertations of the companies health -
What happens when you forget the second principle of Finance?
Money has a time value -> Focusing on the short run, resulting in shortening of companies life -
What happens when you forget the third principle of Finance?
Risk requires a reward -> underestimating risks, resulting in negative returns of investments -
What happens when you forget the fourth principle of Finance?
Market prices are generally right -> ignoring the market efficiency, resulting in a bad streak of decisions -
What happens when you forget the fifth principle of Finance?
Conflict of interest cause agency problems -> executive compensation is out of control, resulting into excesive personal preferenced decicion making -
How do investors decide where to invest their money?
The expected return should reflect the calculated risk plus the delay in consumption
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