Financial Assignment Example | Topics and Well Written Essays - 500 words

Financial - Assignment Example A financial manager can buy a large lot of stocks if the prices of stocks are lower. Valuation Principle The valuation principle can help financial managers make financial decisions regarding whether or not to buy a common stock. The use of valuation models can help a manager determine the intrinsic value of a corporation. The application of stock valuation models can be used to determine if the market price of a stock is over or under valued. Common stocks that have a value lower than the market price should not be purchased, while stock whose valuation exceeds in the market price should be purchased. Net Present Value The net present value is an analytical tool that can be used to make capital decisions. The NPV takes into consideration all the inflows and outflows of money associated with a project to determine whether a project should be accepted or rejected (Besley & Brigham, 2000). Another important element of the NPV calculation is the fact the NPV incorporates the time value of money. The time value of money adjusts the values in order to consider inflation. Most corporate finance books have time value of money tables. According to the NPV a project should be rejected when the value of the NPV is negative. A project is accepted when the value is positive. The use of NPV calculation can be used to compare different projects.