The five basic principles that form the foundation of finance consists of cash flow is what matters, money has a time value, risk requires a reward, market prices are generally right and individuals respond to incentives.

False

Explanation:

cash flow is what matters: incremental cash flows matter, not accounting profits. * money has a time value: one dollar today is worth more than one dollar tomorrow. risk requires a reward: investors are risk adverse, so a risky investment requires a reward or a higher rate of return. market prices are generally right: financial markets are extremely efficient in determining the price of securities and other assets. conflicts or interest cause agency problems: managers (agents) may sometimes act based on self interest and not in the best interest of their clients, resulting in a loss of value for them.

*Many people confuse finance with accounting and they are very different. Finance uses accounting information to make decisions, but finance is about cash flows and time, e. g. a firm may have a huge profit because it sold all its merchandise on credit, but financially it's broke because it can't even pay its utilities.