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Economic 2302 Paper

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Can Financial Management Decisions Influence Firm Value

Economy 2302
Monique Martin
Chu Nguyen

Financial management is a work plan that details the revenue and expenses of a company. Financial decisions are strategies that achieve the financial objectives of a company that include capital budgeting, capital structure, and working capital management. Modigliani and Miller (1958) received the Nobel Prize in economics for their study of the relationship between capital structure and corporate value, with and without corporate tax. Whether financial management decisions influence firm value is still debated daily because there are plenty of uncertain factors. In this paper, I intend to discuss related theories about financial management and the efficiency of capital market. The main objective of management is to insure all scarce resources are used in a efficient and effective way that will allow a company to reach its financial target. In most cases, that target is to achieve profit of value. If isues or losses occur, the company will usually revise its polices to address those issues in hopes of resolving the issue and putting the company back on the road to make profits. Management decisions made by a company or firm include but are not limited to capital budgeting, capital structure, and working capital management. Capital budgeting is a process of long run overall arrangements to make timely and reasonable investments when needed by management. The techniques used in this process include but are not limited to Net Present Value, Internal Rate of Return, Equivalent Annual Cost. It is important for corporate operation to exist because it allows a company to make choices that will result in positive NPV(Ross et al, 2009). When an objective is observed, capital budgeting helps estimate cash flow and

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