Summary: Foundations Of Finance - The Logic And Practice Of Financial Management | 9780273789956 | Keown, et al

Summary: Foundations Of Finance - The Logic And Practice Of Financial Management | 9780273789956 | Keown, et al Book cover image
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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

  • 1 Financial Management and the Firm

    This is a preview. There are 27 more flashcards available for chapter 1
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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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