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Managerial Finance

v1.0 Amy K. S. Scott and Bradley C. Barnhorst

Chapter 1 Why Finance?

If Only . . .

A poor farmer believes that she could raise milk cows, providing food for her family. And the cows could give birth to more cows, eventually providing food for neighboring households as well! If only she had the money to purchase this pregnant cow at the market.

Cows in a grassy field.

A tailor thinks that he could sell more of his fine work, but he would need a more prominent shop with adequate advertising. If he waits to save enough cash, then another merchant might take the shop, or another tailor might encroach upon his potential market. If only he could rent the shop now.

A successful CEO needs to decide which product lines should be expanded. The cost of expanding a product line is massive, and has considerable risk. Should they all be expanded? If not, which ones should be selected? Is there enough capital available to expand them all? If only there were a way for her to evaluate this decision.

A CEO at the head of a table explaining a chart to her employees.

We live in a world of scarcity: our resources are not limitless. Each one of us is reminded daily of this fact. Right now, you are choosing to use your time to read this text (as we have used our time to write it), when there exists a host of alternatives competing for your attention. If only there existed a framework for evaluating how to best use our time.

Those who would administer wisely must, indeed, be wise, for one of the serious obstacles to the improvement of our race is indiscriminate charity.

—Andrew Carnegie