Time Value of Money

business A major theme in this course is risk versus return. This theme is woven throughout the following modules:

Foundational backdrop provides an overview of the financial system, the importance of efficient financial markets, and the integration of managerial finance with business strategy. To understand the strengths and weaknesses of a firm, it is necessary to have an understanding of the strategy management is following and how the firm is able to compete in the factor, product, and financial markets.

Time value of money concepts are central to financial decision making. Time value of money means that funds have a risk-adjusted opportunity cost because alternative uses for funds exist.

Valuation of debt and equity examines how to price these securities and, thus, value the firm.

Capital structure analysis addresses the financing issue of how much debt financing to use and what is the resulting weighted average cost of capital (WACC) for the firm. WACC represents the opportunity cost of capital.

Capital budgeting techniques examine the proper use of time value of money concepts to aid managers in making value-creating decisions for capital expenditures. The focus is on identification of relevant cash flows, which are then discounted at an appropriate risk-adjusted opportunity cost of capital

Economic value added (EVA) is an accounting-based approach to measure value creation.

I use both lectures and cases to explain the materials and instill a better understanding of risk-return tradeoffs. While the lectures are not designed to dwell on abstract theory, theory is important because it provides the underpinnings for doing intelligent analysis. You will apply this material to analyze several real case situations.

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