Organization of the Book
by MaestriThe primary goal of a manager should be to maximize the value of his or her ?rm. To achieve this goal, managers must have a general understanding of how businesses are organized, how ?nancial markets operate, how interest rates are determined, how the tax system operates, and how accounting data are used to evaluate a business’s performance. In addition, managers must have a good understanding of such fundamental concepts as the time value of money, risk measurement, asset valuation, and techniques for evaluating speci?c investment opportunities. This background information is essential for anyone involved with the kinds of decisions that affect the value of a ?rm’s securities.
The book’s organization re?ects these considerations. Part One contains the basic building blocks of ?nance, beginning here in Chapter 1 with an overview of corporate ?nance and the ?nancial markets. Then, in Chapters 2 and 3, we cover two of the most important concepts in ?nance—the time value of money and the relationship between risk and return.
Part Two covers the valuation of securities and projects. Chapter 4 focuses on bonds, and Chapter 5 considers stocks. Both chapters describe the relevant institutional details, then explain how risk and time value jointly determine stock and bond prices. Then, in Chapter 6, we explain how to measure the cost of capital, which is the rate of return that investors require on capital used to fund a company’s projects. Chapter 7 goes on to show how we determine whether a potential project will add value to the ?rm, while Chapter 8 shows how to estimate the size and risk of the cash ?ows that a project will produce.
Taken From : Five-Minute MBA – Corporate Finance
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