Question

Describe the core principles of corporate finance. Explain: 1) the goal 2) major types of long-term and short-term financial decisions 3) for each major decision, name an example.

Answer 1

Core principles of corporate finance are

1.investment

The funds are to be invested at a places which increases the wealth of the entity

2.finance principle

Funds should be sourced from sources which results in lower overall cost of capital

3.dividend principle

Regarding when to retain earning and when to distribute them...

Longterm and shortterm decisions

Longterm investment decision

Investing in building is an example of this decision

Shortterm investment decision

Investing in stock for running business is an example of this decision

Longterm finance decision

Borrowing funds from bank as longterm loan is an example of long term finance

Shortterm finance

Bank overdraft is an example of shortterm finance,trade credit is another example...