July 30th, 2012
Guillermo Furniture Store Concepts Paper
The fundamental principles of finance supports to understand more about financial world once conditions become more complicated. The important principles that businesspeople should know are principle of self-interest, the principle of two-sided transactions, the signaling principle, the behavioral principle, the principle of valuable ideas, the principle of comparative advantage, the options principle, the principle of incremental benefits, the principle of risk-return trade-off, the principle of diversification, the principle of capital market efficiency, and the time-value-of-money principle. It is necessary to understand human behavior for making good decisions because people act rational ways as they have their own financial interest. Principle of self-interest says customers would choose most financially advantageous transition. The principle of two-sided transactions is straightforward and it simply reminds to consider both sides such as not only to be self-centered. The example is one can be possessing self-interested behavior while the other is following his or her own financial interest. The signaling principle is an extension of the principle of self-interested behavior that addresses the problem of asymmetric information. On the other hand that means guessing the options behind the decision. “The Behavioral Principle is a direct application of the Signaling Principle. The Signaling Principle says that actions convey information. The Behavioral Principle says, in essence, “Let’s try to use such information” (Emery, Finnerty, and Stowe - 2007).
The behavioral principle can apply to two kinds of conditions that are the case with a limit understanding and the case with more cost-effective than accurate method. Theory does not support a clear solution to the choice of capital structure. The principle of...