ABSTRACT
In this chapter we consider essential financial concepts and tools that financial managers use to make decisions. We begin with a discussion of risk considerations, including the risk/return tradeoff, risk diversification, and the impact of risk on enterprise value maximization. We then describe the general structure of interest rates and stock prices and the determination of cost of capital. We then examine time value of money, including present value and future value, and consider how the time value framework can be used to develop investment decisions rules. The chapter concludes with a brief overview of behavioral finance.
