Week 4 Assignment 1 Edwin Lopez-Petrilli Professor William Hall Fundamentals of Corporate Finance Tuesday July 26, 2011
WEEK 4 ASSIGNMENT 1
Explain why market prices are useful to a financial manager. Financial managers are tasked with making investment decisions, financing, and managing cash flows from operating activities therefore when prices from competitive markets determine the cash value of goods and the price determines the value of the goods. Financial managers must be able to evaluate costs and benefits in order to make the right decisions that benefit the organization. When market prices are used to evaluate the costs and benefits, in terms of cash on hand now, the determination is the best decision for the organization. This makes the organization and its investors profits, because the value of its benefits exceeds the value of its cost. Discuss how the Valuation Principle helps a financial manager make decisions. . The task of every financial manager is to make educated decisions on behalf of the investors and shareholders. Managers in these positions are faced with questions regarding investments, production, etc.; each and every day. It is too often that within an organization, a propose idea that sounds good at the time but may not be of benefit. It is the job of the financial managers to break the idea down into detail to analyze the cost and benefits, and then make a decision based on concrete numbers. The process is the Valuation Principle, an analysis between the value of the cots and the value of its benefits. It provides a basis for making decisions within a company. In a competitive market in which the good(s) can be bought and sold at the same price, the value of a good(s) is set by its price, and any personal opinion or preference is irrelevant when determining value.
WEEK 4 ASSIGNMENT 1
Describe how the Net Present Value is related to cost-benefit analysis. .