Finance

Kenneth Boudreaux

Different investment projects generate different cash flows and different levels of risk. The problem is that choices have to be made among competing uses for funds because businesses typically face constraints on the availability of capital. Financial tools make it possible to reduce a bewildering array of cash flows spread over a variety of time periods to more easily comparable net present values. These tools enable the efficiency principles of economics to be applied in a rigorous manner. Financial concepts also provide the link between company operations and capital markets. It is impossible to understand the behaviour of the stock market without a grasp of the principles of financial analysis.

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