Basic Business Finance Tim Davis：基本的商业金融 提姆戴维斯.docxVIP

Business Finance SummaryBusiness Finance, Investors, Firms and MarketsInvestments in assets are important because assets generate the cash flows that are needed to meet operating expenses and provide a return to owners of the business.Financing decisions involved generating funds internally or form external sources to the business. Such as by issuing debt or equity securities.Financing charges amount to non-operating cash flowsThe required rate of return caters for the costs to both shareholders and debt holders for funds committed to the project. Therefore, using the required rate of return involves the financing charges being incorporated into the discount rate NOT the Net Cash Flows.Fishers Separation Theorem states:Two time points: present and futureNo uncertainty, outcome of all decisions is known nowNo imperfections in the capital marketAll decision makers are rationalCompanies managers use resources according to shareholdersThe theorem assumes that there is certainty and a frictionless capital market in which the interest rates for borrowers equals interest rate for lenders.Shows a company can make a dividend/investment decision that is in the best interest of all shareholders.Using ROR it is possible to show that the viability of project will depend on the ROR in respect to interest rate introduced through the capital marketIf the interest rate is lower than both projects, then the combination of both projects is best accepted and if no combination is possible (i.e. an upgrade and another project) then both projects are accepted.NPV calculates the projects REQUIRED RATE OF RETURN to convert future cash flows to their equivalent values today.Capital rationing describes the situation where firms have limited resources and independent projectsTherefore,IF A CAPITAL MARKET EXSISTS MANAGERS CAN MAKE A SINGLE DECISION THAT IS OPTIMAL AND MEETS SHAREHOLDERS NEEDS.IF A CAPITAL MARKET DOESN’T EXIST SHAREHOLDERS CANNOT AGREE ON A INVESTMENT DECISIONAccounting rate of