Principle Finance 100

In: Business and Management

Submitted By ammail29651
Words 490
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Assignment #1

Dr. Pete McDaniel
Principles of Finance-FIN100
November 16, 2010
Explain why market prices are useful to a financial manager? The Valuation Principle states that we can use the current market prices to determine the value today of the different costs and benefits associated with a decision. A financial manager’s job is to make decisions on behalf of the firm’s investors; it also involves using skills from marketing to determine the increase in revenues resulting from advertising campaigns. Economics determine the increase in demand from lowering the price of a product, organizational behavior is used to determine the effect of changes in management structure on productivity, strategy is used to determine a competitors response to price increase, and operations are used to determine production costs after the modernization of a manufacturing plant. The financial manager’s job is to compare the cost and benefits and determine the best decision to make for the value of the firm. Discuss how the Valuation Principle helps a financial manager make decisions. The Valuation Principle helps a financial manager make decisions by the value of commodity or an asset to the firm or its investors is determined by its competitive market price. The benefits and costs of the decision should be evaluated by using those market prices, when the value of the benefits exceeds the value of the costs, the decision will increase the market value of the firm. Describe how the Net Present Value (NPV) is related to cost-benefit analysis. The Net Present Value (NPV) is related to cost-benefit analysis by the NPV of a project or an investment as the difference between the resent value of its benefits and the present value of its costs. The NPV decision rule when choosing among investment alternatives is to take the alternative with the highest…...

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