ConceptIntermediate
What are the four basic principles of finance that managers rely on when evaluating long-term investment opportunities?
The four basic principles of finance that managers rely on when evaluating long-term investment opportunities are: 1) Money Has a Time Value, 2) There Is a Risk-Return Tradeoff, 3) Cash Flows Are the Source of Value, and 4) Individuals Respond to Incentives.
Key points
- Money Has a Time Value: Cash flows must be discounted to present value.
- Risk-Return Tradeoff: Different investments have varying levels of risk.
- Cash Flows Are the Source of Value: Focus on cash flows rather than accounting profits.
- Individuals Respond to Incentives: Managers' incentives must align with shareholder value.
Related questions
Financial Management: Principles and Applications
Sheridan Titman
Thirteenth Edition · Pearson