BUSINESS FINANCE Business finance is the wide range of activities around the management of money

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BUSINESS FINANCE Business finance is the wide range of activities around the management of money and valuable assets or rather is the business activity with capital funds in meeting financials needs. INTRODUCTION Business aims at building value for its owners, customers and other stakeholders. The value of the output should exceed the costs of input in resources. Resources which make information to flows are reported in financial statements including the cash flow and income statements. Traditional accounting always gets concerned with reporting business financial terms about past performance. Finance Background Financial decision made by the…show more content…
This is an intangible asset which involves statement deposit, stocks and bond. Financial assets are more of a liquid than tangible assets. Financial asset can be defined as: • Cash or cash equivalent; • Equity instruments of another entity; When selecting Capitalization Rates you should consider the risk characteristics of an investment opportunity or security. In the Capital Asset Pricing Model (CAPM), the higher the risk involved in investing asset, the higher the minimum expected rate of return to attract investors to invest. Capitalization rate of financial asset is the function of riskiness of asset. Risk: standard deviation of expected future returns. • Standard deviation measures expect variability around expected future rate of return • Higher variability - higher standard deviation - higher risk CAPM states that appropriate capitalization rate (K) should be equal to risk-free rate (Rf) plus risk premium. • Risk-free rate is intercept of CML where returns are earned when standard deviation is zero (where there is no risk). • Risk premium is function of standard deviation of expected future returns (S) • M is slope of CML K = Rf + MS Valuation of financial assets is done using types of models: 1. Absolute value models. This determines the present value of an asset's expected future cash flows. The model take two general forms: multi-period models such as discounted cash flow models or single-period models such as the
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