MGT 5 Lecture Notes - Lecture 16: Cash Flow, Discount Window, Inverse Relation
4 Dec 2018
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Take values from future years and see what it"s worth today. Net cash flow associated with an item. Everything in today"s dollars to make sure we can accurately assess the value of a product. Present value of a dollar vs. present value of an annuity. Dollar single exchange of funds in the future. Year one you get , year two you get , etc. As long as the interest rate is greater than 0, ,000 exchanged 10 yrs from today is not worth ,000 today. Same dollar amount every year without exception. Easy to tell from the lump sum (1x) table because all the values after the first one on the annuity table is greater than one. Inverse relationship between interest rate and present value. This is because in this environment the discount rate is an evaluation standard. We know the dollar amount as it will be in the future.
