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calculate the future value and present value of an amount using one period and multiple periods.

he Investment Principle: Invest in assets and projects that yield a return greater than the minimum acceptable hurdle rate. The hurdle rate should be higher for riskier projects and should reflect the financing mix used—owners� funds (equity) or borrowed money (debt). Returns on projects should be measured based on cash flows generated and the timing of these cash flows; they should also consider both positive and negative side effects of these projects.

�      The Financing Principle: Choose a financing mix (debt and equity) that maximizes the value of the investments made and match the financing to nature of the assets being financed.

�      The Dividend Principle: If there are not enough investments that earn the hurdle rate, return the cash to the owners of the business. In the case of a publicly traded firm, the form of the return—dividends or stock buybacks—will depend on what stockholders prefer.

            When making investment, financing and dividend decisions, corporate finance is single-minded about the ultimate objective, which is assumed to be maximizing the value of the business. These first principles provide the basis from which we will extract the numerous models and theories that comprise modern corporate finance, but they are also commonsense principles. It is incredible conceit on our part to assume that until corporate finance was developed as a coherent discipline starting just a few decades ago, people who ran businesses made decisions randomly with no principles to govern their thinking. Good businesspeople through the ages have always recognized the importance of these first principles and adhered to them, albeit in intuitive ways. In fact, one of the ironies of recent times is that many managers at large and presumably sophisticated firms with access to the latest corporate finance technology have lost sight of these basic principles.

The Objective of the Firm