share value does not depend on the firm’s dividend policy. ii) The firm‟s total value does not depend on the amount of debt it has. Option Pricing Theory Can find the value of an option. Shares are a call option on the firm’s assets. 3 Two concepts Equilibrium Equilibrium prices: those at which‚ on average‚ the number of buyers at that price equals the number of sellers. Arbitrage Two portfolios having identical cashflows (with identical risk) must have identical value. Otherwise
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annum. Part I Introduction Chapter 1 income and capital Paragraph 1 subjective or enjoyment income. It is only what we carry out of the marketplace into our homes and private lives which really counts. Money is of no use to us until it is spent. The ultimate wages are not paid in terms of money but in the enjoyment it buys. Enjoyment income is a psychological entity; we can approximate it indirectly by going one step back a bit to what is called real income. Real wages and indeed real income
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Risk & Return Q1: Which rules should be in mind during selection of stocks for portfolio investment? 1. Allocation 2. Sectors Basic Materials Capital Goods Communication Consumer Cyclical Energy Financial Health Care Technology Transportation 3. Stock Selection 4. Monitor Q2: Distinguish between market risk & diversifiable risk. Can market risk be avoided? Market Risk The possibility for an investor to experience losses due to factors that affect the overall performance of the financial
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of economic welfare of its shareholders. Maximisation of economic welfare means maximisation of wealth of its shareholders. Shareholder’s wealth maximisation is reflected in the market value of the firm’s shares. Experts believe that‚ the goal of financial management is attained when it maximises the market value of shares. There are two versions of the goals of financial management of the firm – Profit Maximisation and Wealth Maximisation. Let us now discuss the goals of financial management
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material (Reference: Financial management by S.N.Maheshwari‚ Financial management by I.M. Pandey ‚ Financial management by Prassana Chandra & Anna university study material) Unit – I FOUNDATIONS OF FINANCE Financial management: An Overview Time value of money introduction to the concept of risk and return of a single asset and of a portfolio‚ valuation of bounds and shares – option valuation OBJECTIVES AND FUNCTIONS OF FINANCIAL MANAGEMENT Maximization of the wealth of equity share holders appears
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The time value of money assumes that the present value of a dollar in the future is less than a dollar today (Edmonds‚ Chapter 24‚ 2007). To make sure that cash outflows and cash inflows are comparable the present value of the future cash flows are restated to “today’s dollars” (“Capital Budgeting Techniques”‚ n.d.). This in turn allows a company to determine if the investment will be beneficial considering the cost. The present value technique uses a discount rate and the present value of future
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Integration of Faith Liberty University February 3‚ 2013 Introduction Money is integral to an economy. It creates a fair system of trade‚ helps measure the value of products and services‚ and encourages people to work hard. The Bible does warn about greed‚ “He that loveth silver shall not be satisfied with silver; nor he that loveth abundance with increase: this is also vanity” (Ecclesiastes 5:10‚ King James Version). Having a goal of running a successful business is not against the Bible’s
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The main objective underlying corporate financial decisions is to maximise the value of the company‚ which in turn maximises shareholder wealth. This involves the optimal use of scarce resources. Fisher’s Separation theorem formally links the concepts covered in the chapter to provide a single decision rule for a firm’s investment decisions. This decision rule is that management’s role is to maximise the present value of the firm’s investments in productive assets. Corporate managers face three
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CHAPTER 6 Accounting and the Time Value of Money CHAPTER REVIEW 1. (L.O. 1) Chapter 6 discusses the essentials of compound interest‚ annuities and present value. These techniques are being used in many areas of financial reporting where the relative values of cash inflows and outflows are measured and analyzed. The material presented in Chapter 6 will provide a sufficient background for application of these techniques to topics presented in subsequent chapters. 2. Compound interest
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Maximization Approach; Time Value of Money and Uncertainty; Agency Problem; Social Responsibility Business Environment‚ Taxes‚ and Financial Environment: Forms of Business Organizations; Financial Instruments; Money Market and Capital Market Instruments; Financial Intermediaries; Financial Risk and Return Concepts in Valuation / Time Value of Money: Present Value vs. Future Value; Simple Interest vs. Compound Interest; Annuities vs. Simple Compounding and Discounting; Future Value of an Ordinary
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