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125230 Business Finance

Questions:
Learning Outcomes
1. Describe key finance goals and decisions and the environment in which financial decisions are made.
2. Identify and assess ethical issues with respect to financial theory and practice.
3. Apply time value of money, valuation, and risk and return techniques to financial decision-making.
4. Evaluate project and firm cost of capital and demonstrate its application to financial decisions.
5. Analyse how sound financial management techniques are used to evaluate long and short term investment decisions.
6. Identify and evaluate alternative financing and dividend decisions.

Valuation Fundamentals What is an asset worth?
Financial assets represent claims on future cash flows, therefore their valuation must consider the size and number of  cash flows as well as     their timing and the investors’ required rate of return An asset’s value is therefore the PV of the cash flows discounted at the investor's required rate of return Where V0
= value of asset at time 0 CFt
= cash flow expected at the end of year t
= discount rate (required return)
= relevant time period
 
Nominal Rate Of Interest
• The actual rate of interest charged by the lender and paid by the borrower.
• Includes inflation and risk components. Overview of Capital Budgeting
 
Capital Budgeting
• The process of evaluating and selecting long-term investments that contribute to the firm’s goal of maximizing owners’ wealth
• Capital Expenditure
• An outlay of funds by the firm that the firm expects to produce benefits over a period of time greater than 1 year
• Capital Budgeting Process
• Five steps: proposal generation, review and analysis, decision making, implementation, and follow-up

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