This unit introduces students to the theoretical basis and analytical framework for corporate financial decision making. It is concerned with both the investment decision of firms and the determination of the financing mix necessary to achieve a firm’s financial objectives. Investment decisions determine a firm’s size, its operating profits, its business risk and its liquidity. Financing decisions affect a firm’s financing costs and its financial risk. These two decisions, combined with the dividend decision, comprise the essential financial decisions which firms must make. Besides, this unit provides an essential skill about financial modeling for students.