Financial Management and Policy

Financial Management --- The course is primarily devoted to the principles of financial valuation. We will first discuss the concept of present value in extensive detail, and then apply the principles of valuation to value (a) real projects (or what is commonly referred to as capital budgeting) and (b) financial securities (stocks and bonds) under certainty. Since financial decision-making virtually always involves risk and uncertainty, we will then introduce the concept of risk, and the relation between risk and return. We will integrate our knowledge of cash flows with our understanding of risk to modify capital budgeting techniques in the presence of risk and uncertainty. The course concludes with an introductory treatment of the effects of financing on capital budgeting decisions. Although the concepts of competitive capital markets and market efficiency will not be covered in a separate session, they will be woven in the fabric of the course.